UNIVERSITY  OF  CALIFORNIA 
AT    LOS  ANGELES 


">ok  is  DUE  on  last  date  stamped  •""' 


SOUTHERN   BRANCH 

UNIVERSITY  CF  CALIFORNIA 


MARKETING  PROBLEMS 


BY 


MELVIN  THOMAS  COPELAND,  Ph.D. 

PROFESSOR  OF  MARKETING 

DIRECTOR  OF  BUREAU  OF  BUSINESS  RESEARCH 

GRADUATE  SCHOOL  OF  BUSINESS  ADMINISTRATION, 

HARVARD  UNIVERSITY 


A.  W.  SHAW  COMPANY 

NEW  YORK  CHICAGO 


LONDON 


l)-57fe? 


COPYRIGHT  1980 


A,  W.  SHAW  COMPANY 


First  Printing,  September,  1920 
Second  Printing,  August,  1921 
Third  Printing,  November,  1922 


FRmTKO  IN  TBE  T7NnED  STATES  OF  AUESICA 


PREFACE 

THE  purpose  of  this  book  is  to  provide  concrete 
problems  in  marketing  for  use  in  instruction. 
Many  of  the  problems  stated  here  already  have 
been  used  in  the  class  work  in  Marketing  in  the  Gradu- 
ate School  of  Business  Administration,  Harvard  Uni- 
versity, and  it  is  for  this  class  that  the  book  primarily 
is  pubhshed.  The  subject  of  Marketing,  as  a  field  of 
scientific  study  and  instruction,  is  in  its  early  stages 
of  development.  Consequently,  the  treatment  of 
topics  taken  up  in  this  book  is  far  from  perfect.  This 
is  to  be  considered  a  preliminary  stage  in  the  systematic 
development  of  the  subject  by  the  problem  method  of 
instruction.  Further  study  and  experience  will  doubt- 
less show  many  opportunities  for  improvement  and 
refinement. 

The  problems  are  selected  to  illustrate  specific 
points,  to  be  developed  by  analysis  and  discussion. 
Although  frequently  the  identity  of  the  individual  com- 
pany or  establishment  is  disguised,  the  cases  are  based 
upon  actual  business  experience.  The  problems  are  in 
the  form  in  which  they  come  before  business  men. 

I  wish  to  acknowledge  my  indebtedness  to  my 
former  colleague,  Mr.  Paul  T.  Cherington,  with  whom 
it  was  my  pleasure  to  discuss  several  of  these  problems 
during  the  years  that  we  were  both  engaged  in  teach- 
ing this  subject.  To  Dr.  Edwin  F.  Gay,  former  Dean 
of  the  Harvard  Business  School,  I  owe  a  deep  debt  of 
gratitude  for  the  constant  encouragement  and  inspira- 
tion that  he  gave  me  in  the  study  of  Marketing.  The 
actual  completion  of  this  undertaking  has  been  due 
in  large  measure  to  the  friendly  interest  and  enthusiastic 
encouragement  of  Dean  Wallace  B.  Donham. 

Cambridge,  Massachusetts  Melvin  T.  Copeland 

June  10,  1920. 


CONTENTS 


PART  PAGE 

I.  Introduction — Marketing  Methods  and 

Policies 1 

II.  Conditions  Determining  Demand 25 

III.  Retail  Trade 41 

IV.  Wholesale  Trade 85 

V.  Methods  of  Marketing  Materials,  Equip- 
ment    AND     Supplies     for     Wholesale 

Consumption l47 

VI.  Sales  Management 213 

VII.  Brands,  Trade-marks,  and  Advertising     .    .  263 

VIII.  Price  Policies 297 

Bibliography 355 

Index 359 


MARKETING  PROBLEMS 


PART  I 
INTRODUCTION— MARKETING  METHODS* 

MARKETING  may  be  defined  as  a  study  of  the 
principles  that  govern  the  poKcies  of  business 
management  in  the  distribution  of  conmiodi- 
ties  from  producers  to  consumers.  This  includes  the 
activities  of  retail  and  wholesale  merchants,  manu- 
facturers' sales  organizations,  the  various  agencies 
engaged  in  the  distribution  of  raw  materials,  and  all 
other  means  of  facilitating  and  promoting  the  sale  of 
merchandise. 

Take  a  shoe  manufacturer,  for  example,  who  has 
just  organized  a  new  business.  The  first  marketing 
problem  for  him  is  the  determination  of  the  agencies 
through  which  his  product  is  to  be  sold.  He  has  a 
choice  between  selling  entirely  to  wholesalers,  entirely 
to  retailers,  or  to  both.  He  has  a  choice,  furthermore, 
between  the  various  types  of  retailers — unit  stores, 
department  stores,  chain  stores,  and  mail  order  houses. 
He  probably  will  find  it  inadvisable  to  plan  to  sell 
indiscriminately  to  all  these.  Some  degree  of  selection 
will  be  essential.  There  is  also  the  possibility  that  he 
may  elect  to  operate  a  chain  of  manufacturer's  retail 
branches. 

Following  this  selection  of  agencies,  and  interwoven 
with  these  problems,  questions  relating  to  the  manu- 
facturer's sales  organization  arise.  How  large  a  sales- 
force  shall  he  maintain?  What  plan  for  management 
of  the  salesforce  is  to  be  developed?  Is  a  stock  depart- 
ment to  be  operated?  Then  come  the  problems  of 
brands.     Is   this   manufacturer   to   sell    his   product 

*  A  substantial  portion  of  this  chapter  was  included  in  a  paper 
presented  at  the  meeting  of  the  Association  of  Collegiate  Schools  of 
Business,  Chicago,  May  7th,  1920,  and  published  in  The  Journal  oj 
Political  Economy,  Vol.  XXVIII,  pp.  375-398. 

1 


2  MARKETING  PROBLEMS 

unl)ran(l(Hl,  entin^ly  under  his  own  brand,  or  under 
wholesiilcrs'  and  retailors'  private  brands?  What  is 
to  be  liis  advertising  poHcy?  How  are  his  shoes  to  be 
priced?  These  are  typical  marketing  problems  that 
the  shoe  manufacturer  must  consider.  Similar  prob- 
lems arc  of  everyday  occurrence  in  many  industries 
and  trades. 

The  methods  of  marketing  merchandise  fall  into 
two  main  groups — (1)  methods  used  in  marketing 
goods  for  retail  distribution,  and  (2)  methods  used  in 
marketing  goods  for  wholesale  consumption.  The 
marketing  processes  are  essentially  different  for  these 
two  groups  of  products.  For  some  goods  that  are  to 
be  Bold  at  retail  a  process  of  assembling  the  products 
of  numerous  manufacturers  or  producers  is  necessary, 
as  in  the  case  of  foods  sold  by  wholesale  grocers.  For 
others,  as  in  the  agricultural  implement  trade,  the 
products  of  one  manufacturer  can  be  distributed  to 
the  retailers  frequently  without  an  intermediary  process 
of  assembling.  The  predominant  characteristic  of  the 
trade  in  goods  sold  through  retail  stores,  however,  is 
the  distribution  of  merchandise  so  that  it  can  be  par- 
celed out  in  small  units,  retailed  to  individual  consum- 
ers who  purchase  for  personal  use  or  gratification. 

Take  a  manufacturer  of  cotton  cloth,  for  example. 
In  the  United  States  alone,  to  say  nothing  of  foreign 
countries,  there  are  more  than  100,000,000  potential 
consumers  of  his  product.  Each  consumer  ordinarily 
will  purchase  only  a  few  yards  of  cloth  at  one  time. 
The  problem  of  this  manufacturer  is  to  find  means  of 
securing  a  distribution  of  his  product  whereby  as  many 
of  these  consumers  as  possible  may  effectively  be  given 
an  opportunity  to  buy  these  goods  in  the  form  and  in 
the  quantity  that  they  desire. 

The  goods  that  are  sold  for  wholesale  consumption 
include  raw  materials;  semi-manufactured  products, 
such  as  crude  iron  and  steel  and  leather;  equipment; 
and  machinery  supplies.  The  raw  materials  must  be 
assembled  in  large  lots  and  usually  it  is  essential  that 
they  be  carefully  graded.  These  materials  are  used  in 
large  quantities  by  individual  purchasers.     The  semi- 


MARKETING  METHODS  3 

manufactured  materials  similarly  are  sold  in  large  lots 
according  to  well-defined  specifications  or  grades. 
Equipment  also  is  generally  a  bulk  sale,  although  in 
some  instances  this  shades  down  to  small  individual 
purchases. 

The  market  for  goods  sold  for  wholesale  consump- 
tion ordinarily  is  clearly  defined  and  of  narrow  scope 
in  comparison  with  the  market  for  goods  sold  at  retail. 
The  purchase  of  goods  for  wholesale  consumption,  fur- 
thermore, is  determined  not  by  the  personal  needs  or 
personal  desires  for  gratification  of  the  purchaser  but 
according  to  purely  business  considerations  of  quality, 
utility,  and  price.  These  considerations  are  governed 
by  the  product  into  which  the  materials  are  to  enter 
or  by  the  production  requirements  of  the  plant  in 
which  the  materials  or  machines  are  to  be  used. 

Take  the  market  for  raw  cotton,  for  instance. 
There  are  only  from  one  to  two  thousand  manufac- 
turers in  the  United  States  who  purchase  raw  cotton. 
The  number  of  purchasers  of  any  specific  grade  of  raw 
cotton  is  even  less.  This  market,  therefore,  is  one 
that  is  clearly  defined.  It  is  a  market,  furthermore,  in 
which  the  individual  sales  are  large.  The  problems  in 
tliis  raw  material  market  are  quite  different  from  the 
problems  in  the  finished  cloth  market,  where  the  cotton 
manufacturer  is  seeking  to  sell  his  product  for  distri- 
bution to  100,000,000  individual  consumers. 

Let  us  consider  now  the  sub-divisions  of  the  methods 
of  marketing  each  of  these  groups  of  products.  The 
methods  of  marketing  goods  for  retail  distribution*  are 
divided  into  three  sections — (1)  conditions  determining 
demand;  (2)  retail  trade;  (3)  wholesale  trade. 

Conditions  Determining  Demand 

Some  of  the  questions  for  consideration  with  regard 
to  conditions  affecting  demand  are  the  following: — 
Who  will  use  the  product?  What  are  the  consumers' 
buying  motives  and  habits?  In  what  form  do  they 
prefer  to  buy  the  product? 

*  For  a  statement  of  the  functions  of  various  types  of  merchants, 
see  Butler,  DeBower,  and  Jones,  Marketirig  Methods. 


4  MAHKKTING  PROBLEMS 

The  i)(>t('nlial  market  for  a  manufacturer  of  work- 
men's overalls  is  definitely  limited  to  men  who  are 
engaged  in  oecupatioiis  where  the  use  of  overalls  is 
necessary.  The  first  task  of  such  a  manufacturer  is  to 
determine  those  occupations  and  the  geographical  loca- 
tion of  tlie  market.  His  problem  is  simple  compared 
witli  the  problems  of  numerous  other  manufacturers. 
While  there  are  some  products  of  almost  universal 
demand,  such  as  certain  articles  of  food,  nevertheless, 
m  most  instances  an  investigation  will  show  that  the 
purchasers  of  any  product  come  mainly  from  particular 
classes  of  consumers.  As  the  first  step  in  the  deter- 
mination of  marketing  methods,  it  is  important  that  an 
analysis  should  be  made,  to  ascertain  the  definite 
classes  of  consumers  to  be  aimed  at. 

Some  of  the  considerations  to  be  taken  into  account 
in  this  analysis  are  whether  the  product  is  for  individual 
or  family  use,  the  age  and  sex  of  the  users,  rural  or 
urban  demand,  the  occupation  of  the  users,  racial 
influences,  living  conditions  such  as  home  ownership, 
the  influence  of  climatic  conditions,  provincialisms  in 
demand  such  as  the  demand  for  left-hand  plows  in 
some  districts  or  the  "yokel"  trade  in  clothing,*  and 
the  influence  of  custom.  A  manufacturer  of  a  break- 
fast food,  for  example,  would  find  difficulty  in  seUing 
his  product  on  the  continent  of  Europe,  because  of  the 
long  established  custom  which  restricts  the  continental 
European  breakfast  to  rolls  and  coffee. 

Buying  motives  and  habits  are  equally  worthy  of 
consideration  in  the  elementary  analysis  of  the  market. 
Groceries,  for  instance,  are  in  that  class  of  merchandise 
that  ordinarily  is  purchased  where  it  is  most  convenient 
for  the  housewife.  Articles  of  women's  wearing  ap- 
parel, on  the  other  hand,  usually  are  bought  by  the 
shopping  process.  In  purchasing  a  coat  or  a  gown, 
the  housewife  wishes  to  compare  stj'le,  quality  and 
price   in   several  shops  before  making  her  purchase. 

The  selection  of  marketing  methods,  furthermore, 
depends  upon  whether  the  buj-ing  motive  is  to  secure 

•  See  ako  Ray  Giles,  Odd  Bu>'ing  Habits  of  the  American  Customer, 
PrinhTs'  Ink,  April  22,  1920,  pp.  148-165. 


MARKETING  METHODS  5 

economy  in  labor  or  economy  in  price,  to  secure  dura- 
bility or  to  satisfy  a  desire  for  a  novelty,  or  whether 
the  purchase  is  made  as  a  necessity  or  as  a  luxury. 

Is  the  article  one  for  which  there  will  be  a  repeat 
demand  from  users?  A  breakfast  food  manufacturer, 
for  example,  can  count  upon  repeat  demand  for  his 
product,  provided  it  is  satisfactory  to  consumers.  The 
manufacturer  of  a  vacuum  cleaner,  on  the  contrary, 
can  expect  repeat  orders  from  consumers  only  at  infre- 
quent intervals.  His  task  is  rather  continually  to  dig 
up  new  purchasers.  The  manufacturer  of  a  safety 
razor  cannot  expect  a  substantial  repeat  demand  for 
the  razor  itself,  but  he  can  count  upon  a  repeat  demand 
for  the  blades  used  in  the  razor.  Obviously,  the  type 
of  sales  organization  to  be  developed  must  be  shaped 
in  part  according  to  whether  or  not  a  repeat  demand 
is  anticipated.  These  illustrate  a  few  of  the  buying 
habits  and  motives  that  must  be  taken  into  account. 

Influences  are  at  work  constantly  to  change  buying 
habits.  The  increased  use  of  automobiles  by  farmers, 
for  example,  is  lengthening  the  farmers'  radius  of  inter- 
est and  tending  to  make  the  farm  demand  for  numerous 
personal  and  household  articles  more  akin  to  city 
demand  than  it  has  been  in  the  past.  The  spread  of 
educational  facilities  and  the  introduction  of  better 
means  of  transportation  and  communication  constantly 
are  affecting  buying  habits.  Public  opinion,  finally, 
may  influence  buying  habits.  This  public  opinion  may 
be  expressed  in  organized  form  through  housewives' 
leagues,  through  the  label  leagues  of  trade  unions, 
through  such  organizations  as  a  consumers'  league,  or 
it  may  manifest  itself  in  unorganized  form  through 
the  development  of  a  sentiment  in  favor  of  or  against 
a  certain  product. 

Shall  the  goods  be  sold  in  packages  or  in  bulk?  The 
answer  to  this  question  in  its  last  analysis  depends  upon 
the  preference  of  the  consumers.  Attacks  upon  the 
package  system  are  of  frequent  occurrence.  Never- 
theless, the  quantity  of  goods  sold  in  packages  con- 
stantly is  increasing,  not  through  coercion  by  manu- 
facturers, but  because  many  consumers  prefer  to  buy 


6  MARKETING  PROBLEMS 

the  merchandise  in  that  form.  General  rules  cannot 
be  laid  down  as  to  whether  goods  should  be  sold  in 
packages  or  in  bulk.  The  problem  is  one  for  careful 
analysis,  in  each  individual  case,  to  determine  the 
marketing  methods  that  are  to  be  used. 

The  nature  of  the  product  and  the  buying  motives 
and  habits  of  consumers  are  among  the  chief  influences 
determining  the  selection  of  the  type  of  retail  store 
through  which  the  product  is  to  be  distributed. 

Retail  Trade 

A  large  majority  of  the  retail  stores  in  the  United 
States  are  unit  stores.  Sometimes  they  are  called 
"independent"  stores  or  "regular"  stores.  A  unit  store 
is  a  store,  without  an  elaborate  departmental  organ- 
ization, that  is  owned  and  managed  as  an  independent 
unit  for  the  sale  of  goods  through  personal  salesman- 
ship. Unit  stores  are  used  most  extensively  for  the 
distribution  of  merchandise  such  as  groceries,  hard- 
ware, agricultural  implements,  shoes,  men's  clothing 
and  furnishings,  jewelry,  cigars  and  tobacco,  and  drugs. 

Unit  stores  furnish  the  most  numerous  outlets  for 
many  kinds  of  merchandise.  They  provide  the  only 
means  whereby  large  numbers  of  consumers  can  be 
reached  regularly  They  are  adaptable  to  the  service 
requirements  of  their  patrons.  Frequently  the  pro- 
prietor of  a  unit  store  has  built  up  a  strong  personal 
clientele.  The  market  for  merchandise  distributed 
through  unit  stores  is  not  dominated  by  a  few  large 
powerful  buyers. 

A  manufacturer  who  elects  to  distribute  his  product 
through  unit  stores,  however,  encounters  difficulty  in 
inducing  a  large  number  of  individual  retailers  to 
handle  his  product  effectively.  Wliile  there  are  many 
notable  exceptions,  nevertheless  a  substantial  number 
of  unit  stores  are  not  operated  efficiently.  The  selec- 
tion of  this  type  of  store  as  the  marketing  agency, 
therefore,  presents  a  series  of  difficult,  complex 
problems. 

For  some  commodities  a  manufacturer  finds  it 
advantageous  to  select  unit  stores  to  act  as  exclusive 


MARKETING  METHODS  7 

agents,  one  in  each  locality.  This  policy  is  exempHfied 
by  several  large  clothing  manufacturers.  Other  cloth- 
ing manufacturers,  whose  product  probably  is  of  equal 
merit,  follow  the  opposite  policy  of  not  building  up 
a  system  of  exclusive  agencies.  There  are  substantial 
reasons  for  and  against  this  system. 

Another  type  of  store  that  generally  is  operated  on 
the  unit  principle  is  the  company  etore.  This  has 
come  into  especial  prominence  during  the  last  few 
years  of  rising  prices.  The  American  Woolen  Com- 
pany, for  example,  established  a  store  at  its  plants  in 
Lawrence,  Massachusetts,  in  1919,  for  the  sale  of 
merchandise  to  its  employees.  Similar  stores  have 
been  organized  by  several  other  large  employers  of 
labor.  To  the  manufacturer  or  wholesaler  seeking 
distribution  for  his  product,  the  company  store  pre- 
sents a  problem  because  of  the  doubt  as  to  its  per- 
manency and  the  friction  that  it  causes  with  many  of 
the  unit  stores  with  which  it  competes. 

The  retail-wholesale  store  is  another  institution 
that  compUcates  the  sales  problem  for  many  a  manu- 
facturer. Such  a  store  is  one  that  carries  on  a  retail 
business  and  also  operates  a  wholesale  department. 
A  store  of  this  type  ordinarily  demands  wholesalers' 
discounts.  It  is,  therefore,  in  a  position  to  buy  goods 
for  its  retail  department  at  manufacturers'  wholesale 
prices.  Oftentimes  it  becomes  a  troublesome  com- 
petitor of  the  unit  stores  to  which  the  manufacturer 
cannot  afford  to  sell  at  wholesale  and  which  are  forced 
to  buy  from  wholesalers  at  prices  higher  than  those  at 
which  the  retail-wholesale  store  purchases  its 
merchandise. 

The  Metropolitan  specialty  store,  especially  for 
articles  such  as  women's  wearing  apparel,  has  become 
an  important  factor  in  the  sale  of  some  kinds  of  mer- 
chandise. This  type  of  store  has  operating  expenses 
quite  similar  to  those  of  the  other  types  of  stores  with 
which  it  competes.  Its  main  advantages  appear  to  be 
those  that  accrue  from  specialization. 

A  department  store,  according  to  the  customary 
usage  of  the  term,  is  a  retail  store  organized  on  a 


8  MARKETING  PROBLEMS 

departmental  system  in  which  one  of  the  large  depart- 
ments is  dry  goods.  Wherein  does  the  department 
store  have  its  chief  advantages?  Its  size  frequently 
gives  it  a  buying  advantage.  Oftentimes  it  is  able  to 
obtain  wholesale  prices  or  high  discounts  because  of 
the  large  quantities  that  it  purchases.  Its  size,  how- 
ever, does  not  give  it  any  advantage  apparently  in 
operating  expenses.  From  such  scanty  information  as 
is  now  available,  it  appears  that  the  ratio  of  operating 
expenses  to  sales  is  as  high  in  department  stores  as  in 
unit  stores;  frequently  the  expenses  are  higher  in 
department  stores  in  proportion  to  sales.  Some  of  the 
failures  of  department  stores  during  the  last  ten  years 
have  been  due,  there  is  reason  to  believe,  to  a  mistaken 
theory  that  a  large  volume  of  business  necessarily 
means  economy  in  operation. 

The  chief  advantage  of  a  department  store,  it 
seems,  is  the  facilities  that  it  offers  for  shopping.  A 
department  store  is  essentially  a  shopping  institution. 
It  is  a  strong  factor  in  the  trade  in  women's  wearing 
apparel,  for  instance;  but  as  a  rule  the  department  store 
has'not  been  able  to  make  a  success  of  a  grocery  depart- 
ment. It  cannot  operate  a  grocery  department  ordi- 
narily as  cheaply  as  a  unit  store  is  operated.  The  buy- 
ing habits  of  the  consumers,  furthermore,  lead  them  to 
patronize  unit  stores  for  the  bulk  of  their  purchases  of 
groceries. 

The  determination  of  the  buying  motives  and  habits 
of  consumers  to  whom  a  given  article  is  to  be  sold, 
therefore,  plays  an  important  part  in  the  decision  of 
a  manufacturer  as  to  whether  he  will  seek  to  have  his 
product  sold  through  unit  stores  or  through  department 
stores. 

A  chain  store  system  is  a  group  of  scattered  stores 
with  single  ownership  and  centralized  management. 
Ordinarily  a  central  warehouse  is  operated  from  which 
merchandise  is  distributed  to  the  retail  branches.  The 
chain  store  system  has  the  advantages  of  large  scale 
buying  and  wide  dispersal  of  the  individual  retail 
branches.  It  has  facilitated  the  development  of  stand- 
ardization of  equipment  and  standardization  of  methods 


MARKETING  METHODS  9 

of  operation  and  management.  Although  there  are 
several  noteworthy  exceptions,  as  in  the  case  of  a  few 
chains  of  department  stores,  chain  stores  as  a  general 
rule  have  been  most  successful  in  marketing  those 
products  that  ordinarily  are  sold  through  unit  stores. 
Chain  stores  are  located  at  points  where  it  is  most 
convenient  for  their  patrons  to  visit  them. 

While .  the  chain  store  system  undoubtedly  has 
definite  advantages  such  as  have  been  mentioned,  it 
also  is  at  a  disadvantage  in  some  respects  in  competi- 
tion with  unit  stores.  The  chain  store  system  is  less 
flexible.  It  cannot  readily  adjust  its  services,  such  as 
delivery  and  credit,  to  meet  the  needs  of  the  individual 
patrons.  Moreover,  the  advantages  that  the  chain 
store  system  gains  through  centralized  buying  and 
standardization  of  management  methods  are  offset,  in 
part  at  least,  by  the  necessity  of  operating  a  central 
warehouse  and  especially  by  the  difficulty  in  securing 
managers  who  will  take  a  keen  personal  interest  in  the 
conduct  of  these  stores.  Expenses  must  also  be 
incurred  for  supervision  and  for  policing  the  branches; 
a  system  of  frequent,  close  inspection  is  necessary  in 
a  chain  store  system. 

Inasmuch  as  many  of  the  chain  store  systems  have 
cut  prices,  they  are  looked  at  askance  by  numerous 
manufacturers  who  beheve  that  their  main  reliance 
must  be  placed  upon  unit  stores.  The  friction  between 
chain  stores  and  unit  stores  has  been  a  matter  of  grave 
concern  to  many  a  manufacturer  during  the  last  ten  or 
fifteen  years. 

Occasionally  a  manufacturer  decides  that  a  system 
of  manufacturer's  retail  branches  is  the  logical  outlet 
for  at  least  a  part  of  his  merchandise.  The  establish- 
ment of  retail  branches  by  a  manufacturer  is  not  ordi- 
narily, however,  for  the  purpose  of  economy  in  mar- 
keting l^expense.  It  seems  to  have  been  the  general 
experience  of  manufacturers  who  have  estabhshed 
retail  branches  that  they  are  not  able  to  operate  their 
stores  more  economically  than  the  average  unit  store 
or  department  store  is  operated.  Such  branches  gen- 
erally have  been  estabhshed  for  other  reasons.     One  of 


10  MARKETING  PROBLEMS 

these  reasons  is  to  insure  a  steady,  sure  outlet  for  at 
least  a  portion  of  the  manufacturer's  product.  There 
are  also  several  instances  in  which  manufacturers  have 
established  a  small  number  of  retail  branches  for  edu- 
cational and  promotional  work.  The  L.  E.  Water- 
man Company,  for  example,  has  a  store  in  New  York 
to  provide  service  to  the  purchasers  of  its  pens  and 
also  to  serve  as  a  laboratory  in  which  to  study  retail 
problems.*  The  Dennison  Manufacturing  Company 
has  four  retail  branches  that  are  used  as  agencies  for 
promoting  the  sale  of  its  products  but  not  in  competi- 
tion with  the  independent  retail  stores  that  carry  this 
merchandise.  Whenever  a  manufacturer  decides  to 
open  up  a  retail  store,  he  finds  immediately  that  his 
action  is  capitalized  by  his  competitors  who  seek  to 
develop  a  spirit  of  antagonism  among  retailers  on  the 
ground  that  the  manufacturer  is  entering  into  direct 
competition  with  his  own  customers. 

A  mail  order  house  ordinarily  is  a  business  that  sells 
at  retail  from  catalogues  and  not  over  the  counter. 
The  orders  are  received  by  mail  at  a  central  warehouse 
whence  the  goods  are  shipped  to  consumers.  The 
chief  field  for  the  development  of  mail  order  sales  has 
been  in  the  rural  districts  and  small  towns.  The  cata- 
logue of  a  mail  order  house  gives  an  opportunity  for 
shopping  somewhat  akin  to  the  visit  to  a  department 
store.  The  large  mail  order  houses,  to  be  sure,  have 
utilized  their  buying  power  and  their  established  clien- 
tele to  sell  many  products  outside  the  range  of  shopping 
goods.  Whether  a  mail  order  house  is  able  to  operate 
at  substantially  lower  expense  than  unit  stores  is  a 
question  that  has  not  yet  been  definitely  settled.  At 
all  events,  concentration  of  buying  power  and  the  tend- 
ency to  cut  prices  frequently  have  caused  manufac- 
turers to  hesitate  to  seek  distribution  of  their  products 
through  mail  order  houses. 

Cooperative  stores  have  not  been  sufficiently  suc- 
cessful in  the  United  States,  up  to  the  present  time,  to 
present  a  substantial  marketing  problem.     A  coopera- 

*  John. Allen  Murphy,  "L.  E.  Waterman  Company's  Laboratory 
Retail  Stores,"  Printers'  Ink,  September  7,  1916,  pp.  3-4. 


MARKETING  METHODS  11 

tive  store,  properly  speaking,  is  one  that  is  owned  and 
managed  b}^  consumers.  The  typical  cooperative  store 
is  organized  on  the  Rochdale  plan  whereby  each  mem- 
ber of  the  society  purchases  one  or  more  shares  of  stock 
at  a  small  amount  per  share.  The  number  of  shares 
that  one  member  may  hold  usually  is  limited,  and  ordi- 
narily each  member  has  one  vote  irrespective  of  the 
number  of  shares  of  stock  that  he  holds.  Dividends 
commonly  are  paid  upon  the  stock  at  the  ordinary- 
local  rate  of  interest  and  the  remainder  of  the  earn- 
ings, aside  from  such  as  may  be  set  aside  for  reserves 
or  surplus,  is  distributed  to  the  members  annually  in 
proportion  to  their  purchases.  This  system  has  had 
a  tremendous  development  in  European  countries,  but 
in  the  United  States  the  number  of  cooperative  stores 
is  small  and  many  of  those  in  existence  have  led  a  pre- 
carious life.  During  the  last  eighteen  months,  the 
cooperative  movement  has  received  a  new  impetus  in 
this  country  through  the  influence  of  labor  union  men ; 
this  may  prove  to  be  a  new  marketing  factor  of  large 
significance. 

Retail  public  markets  present  problems  of  quite  a 
different  character  from  those  encountered  in  other 
types  of  retail  stores.  Municipal  markets  in  which 
booths  are  leased  to  dealers,  to  be  sure,  are  not  far 
different  from  other  classes  of  retail  stores.  Public 
markets  in  which  producers  sell  to  consumers,  however, 
bring  in  a  new  set  of  problems. 

Widespread  efforts  have  been  put  forth,  especially 
during  recent  years,  in  numerous  localities,  to  stimu- 
late the  development  of  public  markets  of  this  type. 
Their  success  depends  upon  the  buying  habits  of  the 
consumers  and  their  readiness  to  go  to  these  markets. 
Their  success  also  depends  upon  the  readiness  of  the 
farmers  to  spend  the  time  necessary  to  haul  their 
produce  to  market  and  to  carry  on  its  sale.  Frequently 
farmers  find  that  this  takes  too  much  of  their  time  at 
a  period  when  their  crops  need  attention.  In  the 
larger  cities,  moreover,  the  supply  of  produce  from 
nearby  sources  is  so  inadequate  for  the  total  needs  of 
the  community  that  large  quantities  must  be  shipped 


12  MARKETING  PROBLEMS 

in  from  more  or  less  distant  points.  Under  such  cir- 
cumstances merchants  are  essential  for  carrying  on  the 
produce  business.  It  may  be  to  the  advantage,  there- 
fore, not  only  of  the  farmers  but  of  the  community  at 
large  under  some  conditions  to  have  the  bulk  of  the 
local  produce  sold  through  established  trade  channels 
rather  than  through  farmers'  public  markets. 

Wagon  retailers  include  those  merchants  who  do 
not  operate  a  retail  store,  except  perhaps  as  an  inci- 
dental adjunct  to  their  business,  but  who  retail  mer- 
chandise from  wagons  that  deliver  the  merchandise  at 
the  homes  of  the  consumers.  The  milk  trade  is  one  of 
the  notable  examples  of  business  that  is  carried  on  by 
wagon  retailers.  Suggestions,  such  as  have  been  made 
from  time  to  time,  that  a  cooperative  system  should  be 
used  for  milk  delivery,  run  afoul  of  this  fact — that  the 
only  place  of  business  for  the  ordinary  milk  dealer  is 
his  delivery  wagon.  If  he  gives  up  his  independent 
delivery  system,  he  practically  gives  up  the  individuality 
of  his  business. 

The  ice  business  is  another  trade  carried  on  by 
wagon  retailers.  In  this  trade  the  heavy  loss  through 
shrinkage  tends  to  discourage  duplication  of  routes  and 
therefore  to  result  in  the  development  of  local  monopo- 
lies in  the  ice  trade.  As  in  the  case  of  the  milk  dealer, 
the  ice  merchant  ordinarily  must  maintain  a  delivery 
system  if  he  is  to  carry  on  an  independent  business. 
Both  milk  and  ice  are  commodities  of  such  general  use 
that  these  trades  present  unusual  marketing  problems 
of  broad  public  policy.  Many  of  these  problems  have 
not  yet  been  solved  satisfactorily. 

The  final  class  of  retail  merchants  includes  what 
may  be  termed  bulk  retailers.  Examples  of  this  class 
are  coal  merchants  and  lumber  retailers.  In  these 
trades  a  merchant  necessarily  must  carry  a  large  stock 
requiring  a  heavy  investment  of  capital  The  trade  is 
seasonal  and  sales  usually  are  made  in  bulk  lots  on 
specification.  The  individual  consumer  seldom  visits 
the  place  of  business  of  the  retailer. 

Each  of  these  types  of  retail  merchants  presents 
special  problems  in  store  management  and  also  special 


MARKETING  METHODS  13 

problems  from  the  standpoint  of  the  manufacturer  or 
producer  who  undertakes  to  determine  the  logical 
channels  for  the  distribution  of  his  product.  The 
selection  of  the  retail  channels  to  be  used,  moreover, 
influences  the  producer's  decision  as  to  the  method  of 
wholesale  distribution  to  be  utilized. 

Wholesale  Trade 

A  wholesale  merchant  is  a  business  man  who  buys 
and  sells  merchandise  on  his  own  account  for  distribu- 
tion to  retailers  in  lots  smaller  than  those  in  which  the 
wholesaler  buys.  The  wholesale  merchant  is  a  large 
factor  in  the  distribution  of  many  products  to  unit 
stores.  Although  there  are  some  manufacturers  who 
sell  their  merchandise  direct  to  retail  grocers,  for 
example,  nevertheless  they  constitute  but  a  small 
minority.  Such  manufacturers,  furthermore,  find  it 
necessary  practically  to  dupHcate  the  organization 
and  to  assume  the  functions  of  the  wholesale  grocer, 
usually  incurring  at  least  as  much  expense  as  the 
wholesale  grocer  incurs  in  operating  his  business. 

The  function  of  the  wholesaler  ordinarily  is  to 
assemble  the  products  of  numerous  manufacturers  and 
to  parcel  these  out  in  such  lots  as  are  required  by  unit 
stores.  The  wholesale  merchant  also  performs  the 
function  of  making  collections  and  bears  the  credit  risk. 
This  is  not  a  small  item  in  many  wholesale  businesses. 
The  large  wholesale  merchant  oftentimes  goes  further 
than  this.  He  assumes  the  responsibility  of  specifying 
what  product  is  to  be  made  and  he  also  may  take  the 
responsibility  of  having  the  product  put  out  under  his 
own  brand  or  trade-mark,  thus  entering  into  competi- 
tion with  the  brands  of  goods  carrying  manufacturers' 
trade-marks. 

Frequently  loose  talk  is  heard  about  the  "elimina- 
tion of  the  jobber."  This  is  not,  however,  a  question 
that  can  be  discussed  on  the  basis  of  generalization 
without  reference  to  the  functions  performed.  Each 
particular  case  needs  to  be  considered  by  itself  on  its 
own  merits.  Take  a  shoe  manufacturer  near  Boston, 
for  example.     He  is  selhng  his  entire  output  of  women's 


\ 


14  MARKETING  PROBLEMS 

shoes  to  sixty  shoe  wholesalers.  One  salesman,  with 
the  occasional  assistance  of  one  member  of  the  firm, 
is  able  to  sell  the  entire  output  of  the  factory.  The 
customers  are  all  of  sound  financial  standing.  The 
manufacturer,  therefore,  incurs  slight  credit  risk.  His 
shipments  are  made  in  large  lots.  Consequently  he 
can  operate  with  a  minimum  shipping  force  and  a 
minimum  office  force.  He  also  receives  valuable  guid- 
ance from  his  customers  in  the  selection  of  styles.  In 
this  case,  the  manufacturer  believes  that  it  is  to  his 
advantage  to  dispose  of  his  product  to  wholesalers. 
He  finds  that  in  this  way  he  can  compete  effectively 
with  other  shoe  manufacturers  who  have  followed  a 
policy  of  selling  their  shoes  directly  to  retailers. 

One  of  the  largest  manufacturers  of  hosiery  in  the 
United  States  has  followed  a  policy  of  concentrating  his 
efforts  upon  the  problems  of  production.  He  sells  his 
entire  output  to  wholesalers.  Many  fruit  and  vege- 
table canners,  whose  business  is  highly  seasonal,  could 
not  afford  to  operate  their  plants,  if  it  were  not  for  the 
assured  outlets  and  the  financial  assistance  furnished 
them  by  wholesale  grocers. 

The  specialty  wholesaler  represents  a  differentiation 
from  the  ordinary  wholesale  merchants,  such  as  are 
referred  to  above.  In  New  York,  for  example,  there 
are  a  number  of  wholesalers  who  handle  only  hosiery 
and  knit  goods.  The  tea  and  coffee  wholesaler  is 
another  specialty  merchant.  These  specialty  whole- 
salers generally  cover  a  wide  territory  in  the  sale  of 
their  products  and  develop  a  demand  through  especial 
care  in  the  selection  and  quality  of  the  merchandise 
that  they  handle. 

There  are  a  few  catalogue  wholesalers  in  the  United 
States.  One  of  the  most  notable  examples  of  these  is 
Butler  Brothers  of  Chicago.  The  catalogue  whole- 
saler does  not  employ  a  force  of  travelling  salesmen 
but  sells  on  mail  orders. 

Merchants'  cooperative  wholesale  associations,  or 
buying  exchanges  as  they  are  sometimes  called,  have 
been  developing  more  rapidly  during  the  last  ten  years 
than  prior  to  that  time.    The  oldest  of  them  have  been 


MARKETING  METHODS  15 

in  existence  for  twenty-five  years  or  more.  These 
cooperative  buying  associations  have  had  their  greatest 
development  in  those  trades  in  which  the  wholesale 
merchant  is  a  large  factor.  They  are  direct  competi- 
tors of  the  wholesale  merchant,  but  in  the  grocery  trade 
at  least  the  cooperative  buying  associations  deal  chiefly 
in  staple  merchandise. 

The  most  successful  type  of  cooperative  buying 
association  is  organized  on  plans  similar  to  the  Roch- 
dale system  of  consumers'  cooperative  societies,  whereby 
each  merchant,  who  is  a  member,  has  one  vote  and 
where  the  amount  of  stock  that  one  merchant  can  hold 
is  limited.  These  cooperative  buying  associations  do 
not  employ  traveling  salesmen.  They  sell  only  for 
cash  or  on  very  short  credit  and  usually  the  customers 
pay  for  the  delivery  of  the  goods  that  they  order. 
There  are  frequent  instances  of  associations  organized 
on  other  principles,  and  sometimes  it  is  stated  that 
some  of  them  have  been  promoted  by  parties  who  were 
interested  in  securing  the  commission  on  the  sale  of 
the  stock  rather  than  in  the  continued,  successful 
operation  of  the  business.  As  in  other  cooperative 
enterprises  the  success  of  the  cooperative  buying  asso- 
ciation depends  upon  the  willingness  of  the  members  of 
the  association  to  work  together  harmoniously  and  to 
employ  sufficiently  expert  managers.  The  most  suc- 
cessful cooperative  buying  associations  are  made  up 
of  retail  merchants  who  are  in  a  sufficiently  strong 
financial  position  to  enable  them  to  pay  cash  for  their 
purchases. 

The  fruit  and  produce  trade  presents  a  series  of 
particularly  complex  marketing  problems.  These  prob- 
lems, nevertheless,  are  of  wide  public  interest.  They 
are  concerned  primarily  with  the  large  urban  markets. 
The  inhabitants  of  the  large  cities  and  the  industrial 
districts  of  the  United  States  are  supplied  with  fresh 
fruits  and  vegetables  from  a  wide  area.  The  local 
supplies,  in  most  instances,  are  not  adequate  to  pro- 
vide during  the  entire  year  for  the  needs  of  the  people 
living  in  these  districts.  With  the  improvement  in 
means  of  refrigeration  and  transportation,  furthermore. 


16  MARKETING  PROBLEMS 

producers  in  distant  parts  of  the  country  have  found 
that  they  can  cater  advantageously  to  these  markets, 
even  to  the  extent  of  engaging  in  specialized  agricultural 
production.  As  yet  the  marketing  machinery  for 
handling  this  large  volume  of  trade  is  by  no  means 
perfect.  The  trade  is  one  of  especial  difficulties  because 
of  the  fact  that  a  constant,  regular  flow  of  merchandise 
is  essential  and  also  because  of  the  perishable  nature  of 
the  merchandise,  which  involves  danger  of  loss  through 
spoilage  or  through  glutted  markets. 
;  The  commission  merchant  is  one  of  the  chief  agen- 
cies for  the  handling  of  fruit  and  produce  in  large  cities. 
Ordinarily  the  commission  merchant  receives  shipments 
on  consignment  from  farmers  or  from  country  dealers. 
These  shipments  are  sold  at  the  prices  that  are  current 
when  the  shipments  arrive.  After  deducting  his  com- 
mission fee  and  any  incidental  expense  that  he  may 
have  incurred,  the  commission  merchant  remits  the 
balance  to  the  shipper.  This  system  enables  the 
shipper  to  ship  his  merchandise  whenever  it  is  ready 
without  awaiting  specific  orders  from  the  commission 
merchant.  It  also  enables  the  shipper  to  obtain  the 
benefit  of  the  prices  that  are  current  at  the  time  that 
the  shipments  arrive  at  the  market.  Dissatisfaction 
sometimes  occurs,  when  the  shipper  does  not  receive  as 
high  a  price  as  he  anticipated.  This  may  be  due  to 
poor  grading,  to  poor  handhng  in  transit,  or  to  an 
unexpected  slump  in  the  market.  The  commission 
merchant  not  infrequently  is  held  responsible  by  the 
shipper  for  the  failure  to  obtain  better  prices. 

Many  commission  merchants,  furthermore,  buy  and 
sell  on  their  own  account,  thus  acting  as  jobbers.  This 
combination  of  a  commission  merchant  and  a  jobbing 
business,  while  it  has  some  advantages  occasionally 
even  to  the  shipper,  has  not  ordinarily  worked  out  well 
in  other  industries  in  the  long  run.  The  conflicts  of 
interest  tend  to  create  distrust  and  dissatisfaction. 

In  the  large  urban  markets  there  are  several  other 
agencies  through  which  produce  may  be  sold.  There 
are  car-lot  receivers  who  buy  outright  on  their  own 
account.    Some  of  these  receivers,  and  also  some  of 


MARKETING  METHODS  17 

the  other  types  of  middlemen,  send  out  buyers  to 
purchase  produce  or  to  contract  for  it  in  the  growing 
districts. 

The  broker,  who  handles  a  portion  of  the  trade  in 
produce,  sells  for  a  brokerage  fee  shipments  consigned 
to  him.  Ordinarily  the  broker,  however,  sells  only 
upon  confirmation  of  the  price  by  the  shipper.  The 
broker,  as  a  rule,  deals  only  in  car-lots. 

The  jobber  in  the  fruit  and  produce  trade  buys 
from  car-lot  receivers,  brokers,  or  commission  mer- 
chants and  sells  to  retailers.  He  performs  the  regular 
wholesale  merchant's  functions. 

The  trade  in  citrus  fruits  and  occasionally  in  other 
products  in  several  large  cities  is  carried  on  through 
auctions.  These  auctions  are  ordinarily  held  daily, 
and  sales  are  made  directly  at  the  freight  terminal  to 
jobbers  and  large  retailers.  The  auction  system  can 
be  used  advantageously  only  where  there  are  large, 
regular  shipments  of  carefully  graded  produce. 

The  most  serious  problem  in  the  trade  in  fruit  and 
perishable  produce  in  our  large  cities  is  the  lack  of 
adequate  terminal  facilities  for  handling  the  trade 
expeditiously  and  economically.  In  New  York,  Chi- 
cago, and  Boston  the  wholesale  fruit  and  produce 
markets  are  practically  in  the  same  condition  that  they 
were  twenty  to  thirty  years  ago.  The  volume  of  the 
trade  has  gieatly  increased;  yet  these  markets  are  not 
well  situated  with  reference  to  shipping  terminals. 
The  result  is  expensive  teaming  through  congested 
streets;  this  frequently  causes  serious  deterioration  in 
the  produce.  While  these  existing  markets  may  gen- 
erally be  well  situated  for  the  jobbing  trade,  neverthe- 
less they  are  not  satisfactorily  equipped  for  handling 
car-lot  shipments.  The  provisions  of  adequate  rail- 
road terminal  facilities  especially  equipped  for  this 
trade  is  one  of  the  most  urgent  marketing  problems  to 
be  faced. 

A  notable  development  in  the  field  of  Marketing 
during  recent  years  has  been  the  growth  of  the  Cali- 
fornia Fruit  Growers'  Exchange,  probably  the  most 
successful   example   of   a   cooperative   association   of 


18  MARKETING  PROBLEMS 

producers.  The  success  of  this  organization  has 
undoubtedly  been  due  in  part  to  special  circum- 
stances, such  as  the  specialized,  capitalistic  nature  of 
the  industry,  an  all-the-year-round  production,  and 
previous  experience  in  cooperative  efforts  for  other 
purposes.  Not  least,  among  other  reasons,  is  the  dis- 
tance from  the  market,  which  has  placed  a  premium 
upon  the  effective  control  of  shipments,  with  diversion 
in  transit  in  order  to  have  the  fruit  delivered  at  mar- 
kets paying  the  best  prices  and  to  avoid  wasteful  gluts. 

There  are  also  numerous  other  examples  of  suc- 
cessful cooperative  marketing  associations  of  pro- 
ducers.* While  cooperative  methods  are  far  from 
being  a  cure-all  for  the  ills  that  exist  in  the  marketing  of 
farm  produce,  nevertheless  they  are  achieving  enough 
success  to  warrant  a  thorough-going  study  of  the  prob- 
lems of  their  organization  and  management  from  the 
business  standpoint. 

The  final  topic  in  this  section  on  wholesale  trade 
deals  with  manufacturers'  wholesale  branches.  Numer- 
ous manufacturers  have  established  wholesale  branches 
for  the  distribution  of  their  products  directly  to  retail- 
ers. Thus  they  have  assumed  completely  the  func- 
tions and  the  expenses  of  the  wholesale  merchant.  In 
few  cases  does  it  appear  that  there  has  been  a  sub- 
stantial saving  in  expense  by  the  adoption  of  this 
poUcy.  The  objects  generally  have  been  to  facilitate 
more  aggressive  selling  or  to  meet  some  special 
conditions  in  the  industry. 

Frequently  a  manufacturer  feels  that  his  product 
does  not  receive  enough  individual  attention  from 
wholesalers  and  their  salesmen.  He  believes  that  by 
coming  directly  in  contact  with  retailers,  he  will  be 
able  to  push  his  goods  more  effectively  against  the 
products  of  his  competitors.  He  values  the  good-will 
of  the  retail  merchants  and  believes  that  he  can  secure 
it  more  certainly  by  dealing  with  them  directly.  In 
other  instances,  the  manufacturer  establishes  a  system 
of  wholesale  branches  in  order  to  maintain  a  more 
steady  production  load  for  his  factory;  with  a  system 

*  See  annual  reports  of  State  Market  Director  of  California. 


MARKETING  METHODS  19 

of  wholesale  branches  the  seasonal  fluctuations  in  the 
volume  of  sales  may  be  lessened. 

Among  the  industries  in  which  the  operation  of 
manufacturers'  wholesale  branches  is  conspicuous  is  the 
meat  packing  industry.  Each  of  the  large  meat  pack- 
ing companies  has  a  system  of  branch  houses  from 
which  its  products  are  distributed  directly  to  retailers. 
Without  entering  into  the  many  controversial  ques- 
tions regarding  the  activities  of  the  packers,  it  is  to  be 
pointed  out  that  the  system  of  branch  houses  and 
refrigerator  cars  enables  a  packing  company  to  secure 
a  nicer  adjustment  in  the  distribution  of  its  iproducts 
than  could  be  obtained  by  any  other  method  that  has 
yet  been  devised.  The  meat  packers,  like  the  growers 
of  fresh  fruit  and  produce,  are  selling  a  perishable 
product.  Speed  in  marketing  is  essential;  only  two 
weeks  elapse  from  the  purchase  of  the  steer  in  the 
stockyards  to  the  sale  of  the  fresh  meat  in  the  distant 
retail  store.  The  inhabitants  of  the  urban  districts 
require  a  continuous  supply  of  fresh  meat.  The  failure 
of  this  supply  would  cause  hardship  and  suffering.  An 
excessive  supply,  on  the  other  hand,  would  result  in 
waste  and  spoilage.  A  continuous  flow  of  fresh  meat 
in  such  quantities  as  are  demanded  from  day  to  day  by 
the  various  markets  must  therefore  be  provided.  The 
organizations  of  the  large  packing  companies  appear  to 
furnish  a  well-adjusted  machine  for  carrying  on  this 
trade  with  a  minimum  of  economic  waste.  This  is 
one  example  of  the  special  circumstances  which  in 
some  trades  have  resulted  in  the  establishment  of 
manufacturers'  wholesale  branches. 

To  sum  up,  it  is  apparent  that  there  are  numerous 
methods  of  distributing  the  merchandise  that  is  sold 
to  consumers  in  retail  lots.  The  competition  between 
various  methods  is  keen;  frequently  it  is  bitter.  In 
determining  the  method  to  be  used  in  any  particular 
instance,  a  careful  analysis  should  be  made  to  show 
which  method  will  reach  the  consumer  effectively, 
economically  and  in  a  manner  to  build  good-will  for 
the  future.  In  solving  each  of  these  problems,  just  as 
in  deaUng  with  other  marketing  problems,  it  is  only 


20  MARKETING  PROBLEMS 

sound  business  policy  to  consider  carefully  how  the 
general  interests  of  the  public  may  best  be  served. 

Methods  of  Marketing  Goods  for  Wholesale  Consumption 

The  plan  to  be  followed  in  analyzing  the  problems 
of  marketing  materials,  equipment,  and  supplies  for 
wholesale  consumption  is  essentially  similar  to  that 
employed  in  determining  the  method  for  marketing 
merchandise  for  retail  distribution.  The  consumers  in 
this  case  generally  are  manufacturers  or  other  large 
users  of  materials  and  equipment.  The  nature  of  the 
demand  is  determined  by  the  conditions  in  the  manu- 
facturing plant  and  by  the  requirements  of  the  product 
that  is  to  be  turned  out.  Thus,  a  worsted  manufacturer 
can  use  only  wool  that  is  suitable  for  combing;  but  the 
grade  of  combing  wool  that  he  buys  depends  upon  the 
specific  kind  of  cloth  that  he  is  to  turn  out  to  meet 
current  conditions  and  styles  in  the  cloth  market. 
The  wholesale  consumers  of  any  specific  material 
ordinarily  constitute  a  well-defined  class. 

The  raw  material  trades  are  bulk  trades.  The 
wholesale  consumer  usually  buys  in  large  lots.  He  also 
buys  in  accordance  with  clearly  determined  specifica- 
tions, which  require  a  substantial  degree  of  uniformity 
in  each  lot.  When  these  materials  are  produced  in 
large  quantities  by  individual  producers  or  in  close 
proximity  to  the  point  of  consumption,  the  sale  fre- 
quently is  made  directly  by  the  producer  to  the  con- 
sumer. Thus  a  coal  mining  company  often  sells  its 
product  directly  to  railroad  companies  and  to  large 
industrial  plants.  The  farmer  growing  sugar  beets 
sells  his  crop  directly  to  the  sugar  factory.  In  many 
instances  these  sales  are  made  in  accordance  with 
formal  contracts  calling  for  deHveries  over  a  period 
of  time. 

In  other  raw  material  trades,  a  merchant  plays  a 
prominent  part.  This  occurs  particularly  when  it  is 
necessary  that  the  materials  should  be  collected  from 
many  small  producers,  graded,  and  assembled  into 
large  lots  of  even  running  grades.  For  example,  much 
of  the  raw  cotton  and  raw  wool  grown  in  this  country 


MARKETING  METHODS  21 

and  in  foreign  countries  passes  through  the  hands  of 
merchants. 

Organized  speculation  is  a  feature  of  the  trade  in 
materials  of  seasonal  production  that  can  be  graded 
according  to  well-established  standards  into  a  small 
number  of  grades.  In  the  grain  trade,  the  Chicago 
Board  of  Trade,  the  Minneapolis  Chamber  of  Com- 
merce, and  numerous  other  institutions  afford  oppor- 
tunities for  organized  speculation  and  for  hedging 
operations  by  merchants  and  manufacturers.  In  the 
cotton  trade,  the  New  York  Cotton  Exchange  and 
the  New  Orleans  Cotton  Exchange  perform  similar 
functions. 

The  methods  of  financing  the  trade  in  some  kinds 
of  raw  materials  are  highly  developed.  Thus  in  the 
grain  trade  and  in  the  cotton  trade  lai'ge  volumes  of 
loans  are  made  by  banks  with  the  use  of  elevator 
receipts,  warehouse  receipts,  and  railroad  or  steamship 
bills  of  lading  as  collateral  security.  To  assist  the 
cattle  grower  in  financing  his  operations  the  cattle  loan 
company  has  been  developed. 

Another  method  of  marketing  raw  materials  is  the 
auction.  The  auction  system,  whereby  the  farmer 
sells  directly  to  the  wholesale  consumer  in  small  lots, 
has  largely  supplanted  other  marketing  methods  in  the 
tobacco  growing  districts  of  the  southern  states.  In 
the  fur  trade,  also,  the  auction  system  predominates. 

One  of  the  outstanding  characteristics  of  the  trade 
in  raw  materials  is  the  tendency  for  the  methods  of 
marketing  each  material  to  become  standardized. 
New  experiments  are  being  tried  constantly  and  new 
methods  developed.  But  whenever  it  is  clearly  estab- 
lished that  a  new  method  is  more  economical  than 
other  methods  in  use,  the  older  methods  tend  rapidly 
to  be  discarded. 

The  methods  of  marketing  semi-manufactured  and 
manufactured  materials,  such  as  pig  iron,  steel,  copper, 
and  leather,  include  direct  sale,  selling  agents,  and 
merchants.  Inasmuch  as  the  merchandise  usually  i.; 
produced  in  large  quantities  of  specified  grade  a?rl 
in  turn  is  sold  in  large  lots  by  specification  to  other 


22  MARKETING  PROBLEMS 

manufacturers,  the  marketing  machinery  necessary  for 
handUng  these  trades  is  much  less  elaborate  than  in 
most  other  industries.  In  each  trade  the  number  of 
producers  is  small  and  the  number  of  purchasers  also 
is  small.  With  few  exceptions  the  process  of  assem- 
bling is  not  necessary,  and  for  much  of  the  trade  ship- 
ments can  be  made  directly  from  the  plant  of  the  pro- 
ducer to  the  plant  of  the  consumer  without  any  inter- 
vening warehousing.  The  merchant's  function  is 
required  only  for  a  small  portion  of  the  business  which 
is  carried  on  under  special  circumstances. 

The  marketing  of  equipment  is  quite  similar  to  the 
marketing  of  manufactured  materials  for  wholesale  con- 
sumption in  that  the  number  of  producers  is  small  and 
the  number  of  purchasers  also  small.  Nevertheless, 
there  is  one  group  of  problems  in  connection  with  the 
marketing  of  equipment  that  is  peculiar  to  this  field. 
With  the  growth  of  large  manufacturing  industries, 
there  has  developed  a  supplementary  set  of  industries 
manufacturing  plant  equipment.  Thus,  there  is  a 
group  of  manufacturers  of  textile  machinery,  the 
manufacturers  of  shoe  machinery,  a  group  of  manu- 
facturers of  printing  machinery,  and  so  on. 

The  production  of  these  highly  intricate  machines 
necessitates  an  expensive  plant  and  organization  for 
the  machinery  manufacturer.  His  field  of  sale  is 
restricted.  Once  a  new  factory  is  equipped  with  his 
product,  he  cannot  expect  to  sell  any  substantial  quan- 
tity of  machinery  to  that  same  plant  again  for  a  long 
period  of  time,  except  for  occasional  repairs  and  per- 
haps for  plant  extension.  He  cannot  count  upon  repeat 
sales  in  his  market  such  as  the  steel  manufacturer  has 
in  selling  his  product.  In  times  of  business  depression, 
moreover,  the  machinery  manufacturer  is  likely  to  find 
his  market  prostrate. 

How  are  equipment  manufacturers  to  meet  this 
problem?  These  special  circumstances  probably  con- 
stitute one  of  the  chief  reasons  for  the  success  of  the 
leasing  system  of  the  United  Shoe  Machinery  Company 
whereby  the  machinery  manufacturer  is  in  a  position 
to  replace  machines  at  his  own  option  and  to  encourage 


MARKETING  METHODS  23 

new  customers  to  build  factories.  In  the  textile  field, 
in  times  of  depression  before  the  war,  the  machinery 
manufacturers  sometimes  adopted  a  policy  of  taking 
stock  in  new  mill  companies  in  exchange  for  machinery. 
This  was  a  marketing  device  to  enable  the  machinery 
manufacturers  to  keep  their  plants  in  operation. 

The  marketing  methods  summarized  briefly  in  this 
statement  are  illustrated  in  the  problems  that  follow.* 
The  selection  of  the  type  of  agency  to  be  used  is  one 
of  the  fundamental  problems  in  marketing.  Other 
questions  of  marketing  policy,  also  illustrated  in  the 
following  problems,  include  the  relation  of  the  sales 
department  to  other  departments  in  the  business,  such 
as  the  credit  department;  the  determination  of  the 
selling  points  of  the  product;  brand  and  trade-mark 
policies;  analysis  of  the  market;  selection,  training,  and 
management  of  the  salesf orce ;  advertising  plans ;  use  of 
the  guarantee;  policies  for  handling  cancellations  and 
return  goods;  and,  finally,  price  policies. 

*  Especially  valuable  suggestions  on  methods  of  analyzing  these 
problems  are  given  in  A.  W.  Shaw's  An  Approach  to  Business  Problems, 
pp.  18-22. 


PART  II 
CONDITIONS  DETERMINING  DEMAND 

THESE  problems  illustrate  the  influence  upon 
demand,  hence  upon  marketing  methods,  of  the 
conditions  under  which  consumers  hveand  work, 
of  buying  habits  and  motives,and  of  consumers'  prefer- 
ences as  to  the  form  in  which  they  purchase  an  article. 

1.  Mohawk  Company — Influence  of  the  Consumer 

The  following  statement  represents  one  view  regard- 
ing demand  influence  in  marketing^ : — 

Above  all  looms  the  manufacturer.  Altogether  he  is  the 
strongest  factor  in  the  fight.  If  he  is  an  advertising  manu- 
facturer, he  rules  the  situation,  in  the  last  analj^sis.  He  has 
made  his  goods  known,  through  their  trade-mark,  to  con- 
sumers. He  is  the  maker  of  the  things  which  this  country 
eats,  wears,  sleeps  on,  plays  with,  and  works  with.  Demand 
is  the  voice  to  which  all  listen,  and  substitution  can  only 
make  a  feeble  effort  to  resist  or  modify  it. 

By  the  same  writer  this  statement  also  is  made'* : — 

The  consumer  holds  the  key — he  will  buy  where  he  can 
get  the  best  goods  cheapest. 

The  following  is  made  by  another  writer' : — 

In  a  series  of  one  hundred  instances  where  consumers 
were  watched  to  note  how  and  why  they  bought  advertised 
goods,  eighty-three  couched  their  first  question,  "Have  you 
so-and-so?"  and  seventeen,  "I  want  so-and-so."  This  shows 
the  attitude  of  the  average  purchaser  when  entering  a  store 
with  the  intent  to  buy.  The  question  "Have  you  so-and- 
so?"  is  a  lead  for  the  merchant  to  put  forth  his  final  and 
necessary  sales  force.  The  consumer  is  simply  in  an  inter- 
rogatory attitude. 

^  This  statement  is  quoted  in  P.  T.  C'hcrington,  Advertising  as  a 
Business  Force,  p.  32. 

J  Ibid,  p.  35.  »  Ibid,  p.  40. 

25 


26  MARKETING  PROBLEMS 

With  his  direct  contact,  his  personal  influence,  and  his 
final  selling  talk,  the  retailer  is  the  power  that  concludes 
sales.  The  influence  of  the  retailer  in  intimate  touch  with 
the  consumers  is  far  greater  and  more  effective  than  that  of 
a  distant  manufacturer  whose  appeal  is  by  means  of  the 
printed  word  alone. 

No  matter  how  successful  selling  by  threat  may  have 
been — with  the  consumer  as  the  innocent  wielder  of  the 
"big  stick" — the  retailer  today  knows  his  power.  He  is  no 
longer  susceptible  to  anything  but  the  direct  approach,  with 
goods  and  prices  as  the  selling  basis.  This  does  not  mean 
that  he  does  not  recognize  and  appreciate  the  wonderful  aid 
of  a  selling  campaign  directed  by  the  manufacturer  at  the 
consumer.  But  it  means  that  such  a  campaign  as  a  selling 
force  from  the  manufacturer  must  follow  the  goods  and  not 
precede  them  in  importance. 

A  third  writer  makes  the  following  statement': — 

When  the  consumer  buys,  he  does  the  choosing.  He 
asserts  his  particular  individuality.  He  expresses  his  likes 
or  dislikes  down  to  the  most  subtle  differences.  He  weighs 
values  between  this  and  that  brand  of  a  similar  product. 
He  discriminates;  he  wants  what  he  wants — and  he  gets  it. 

The  following  statements  are  made  by  Mr.  Emer- 
son P.  Harris  in  his  book  on  Cooperation^ : — 

In  the  last  fifty  years  there  has  grown  up,  notably  in  the 
United  States,  a  system  of  distribution  which,  in  my  opinion, 
is  calculated  to  influence  and  does  influence  the  ideals  and 
habits  of  the  people  very  profoundly.  This  system  does  not 
confine  its  functions  to  furnishing  what  it  is  found  that  the 
consumer  wants,  but  exerts  a  subtle  but  powerful  and  far- 
reaching  influence  in  determining  what  the  consumer  shall 
want  and  what  he  shall  buy. 

So  it  has  come  to  pass  that,  in  spite  of  society's  effort  to 
encourage  and  educate  our  power  to  make  independent 
choices,  whether  we  will  spend  our  money  or  not  and  what 
we  will  spend  it  for  depends  largely  upon  the  will  of  the  pro- 
ducers and  distributors  of  commodities  by  whom  we  are 
assailed.  We  consumers  are  about  as  unconscious  of  this 
influence  as  we  are  of  increased  pressure  of  the  atmosphere 
when  we  descend  from  the  mountain  to  the  valley,  but  the 
facts  are  fully  demonstrated  by  figures. 

*  This  statement  is  quoted  in  P.  T.  Cherington,  Advertising  as  a 
Business  Force,  p.  89. 

2  Emerson  P.  Harris,  Cooperation  the  Hope  of  the  Consumer,  pp.  5, 
6,  and  21. 


THE  CONSUMER  27 

I  claim  that,  through  this  influence  of  aggressive  market- 
ing, consumers  are  caused  to  buy  when  they  should  not  spend 
their  money;  are  caused  to  buy  wrong  things  instead  of 
things  suited  to  their  needs;  are  distracted  from  choosing 
wisely  and  are  afforded  insufficient  facilities  to  aid  in 
wise  selection. 

Is  the  consumer  afforded  proper  facilities  to  enable  him 
to  choose  wisely?  In  the  opinion  of  the  writer  there  is  no 
department  in  our  social  life  which  leaves  so  much  to  be 
desired.  We  Americans  are  far  abler  to  turn  our  efforts  into 
dollars  than  to  turn  our  dollars  into  real  utility  values.  We 
work  hard  and  successfully  to  earn  money,  but  then  we 
'spend  our  money  for  that  which  is  not  bread  and  our  labor 
for  that  which  satisfieth  not.'  When  our  forefathers 
fashioned  with  their  own  hands  that  which  they  were  to 
use,  the  manual  effort  was  an  automatic  restraint  upon 
spending  it  for  useless  things.  But  we  now  work  for  money 
and  have  no  conception  of  its  value.  It  is  here  that  we  are 
at  sea.  In  the  absence  of  dominating  life  purpose  and 
definite  plan,  we  drift.  We  are  peculiarly  susceptible  to  the 
influence  of  sales  persuasion,  printed  and  oral,  and  we  are 
woefully  without  real  intelligent  guidance. 

Considering  these  statements  from  the  standpoint 
of  the  president  of  the  Mohawk  Company,  recently 
organized  for  the  manufacture  of  axes  and  similar 
tools,  which  view  regarding  the  influence  of  the 
consumer  is  correct? 


2.  American  Locomotive  Company 

In  1906  the  American  Locomotive  Company 
engaged  in  the  automobile  business.*  The  company 
acquired  the  American  rights  to  the  French  Berliet  car 
and  for  the  importation  of  parts  and  tires  from  abroad. 
A  large  factory  was  built  in  Providence,  Rhode  Island, 
and  $6,000,000  was  invested  in  this  automobile  busi- 
ness.    The  car  was  a  mechanical  success  and  sold  at 

>  Printers'  Ink,  August  28,  1913,  pp.  82-83. 


28  MARKETING  PROBLEMS 

a  high  price.  In  1913,  the  company  is  said  to  have 
ranked  third  in  the  United  States  in  the  manufacture 
of  commercial  motor  vehicles.  It  is  further  stated  that 
the  company  established  a  service  station  in  Long 
Island  City,  another  in  San  Francisco,  supplemented 
by  headquarters  and  branch  offices  in  New  York, 
Chicago,  Boston,  and  Philadelphia.  For  the  first  three 
or  four  years  after  the  company  was  established,  its 
product  was  sold  entirely  through  four  retail  branches. 
During  the  next  four  years  eighty-nine  agencies  were 
established. 

In  August,  1913,  the  company  announced  its  with- 
drawal from  the  manufacture  and  sale  of  automobiles 
and  motor  trucks.  The  venture  was  said  to  have  been 
unsuccessful  from  a  commercial  standpoint.  While  the 
location  of  the  factory  was  considered  a  disadvantage, 
the  major  difficulty  was  supposed  to  have  been  in  the 
sales  methods.  It  was  stated  at  the  time  the  announce- 
ment of  the  discontinuance  of  the  automobile  business 
was  made  that  the  company  had  not  realized,  at  least 
until  too  late,  that  quite  different  methods  were 
required  for  the  sale  of  automobiles  from  the  methods 
used  in  marketing  locomotives. 

How  do  the  methods  required  for  the  sale  of  auto- 
mobiles differ  from  the  methods  of  marketing  loco- 
motives? 


3.  Sale  of  Farm  Produce  by  Parcel  Post^ 

Mr.  James  Holden,  who  owns  a  farm  in  northern 
Ohio,  has  become  dissatisfied  with  the  prices  paid  him 
by  local  buyers  for  vegetables,   eggs,   and  poultry. 

^  U.  S.  Department  of  Agriculture,  Farmers'  Bulletin  703:  "Suggest- 
ions for  Parcel  Post  Marketing."  U.  S.  Department  of  Agriculture, 
Bulletin  No.  688:  "Marketing  Berries  and  Cherries  by  Parcel  Post." 
U.  S.  Department  of  Agriculture,  Farmers'  BvUetin  930:  "Marketing 
Butter  and  Cheese  by  Parcel  Post." 


THE  CONSUMER  29 

Consequently  he  is  turning  his  attention  to  the  possibil- 
ities of  the  use  of  parcel  post  for  selling  direct  to 
consumers. 

What  conditions  must  he  fulfill  in  order  to  build  up 
the  necessary  volume  of  parcel-post  business  and 
retain  the  patronage  of  customers? 


4.  Convenience  Goods  and  Shopping  Goods 

A  distinction  based  on  buying  habits  frequently  is 
made  between  convenience  goods  and  shopping  goods. ^ 
Convenience  goods  include  merchandise  that  ordinarily 
is  purchased  at  the  place  that  is  most  convenient  to  the 
consumer.  Shopping  goods  include  merchandise  in  the 
purchase  of  which  the  consumer  wishes  to  compare 
qualities  and  values. 

The  Tonawanda  Hosiery  Company  manufactures 
women's  and  children's  hosiery.  Is  its  product  to 
be  considered  in  the  class  of  convenience  goods  or 
shopping  goods? 

The  Raven  Manufacturing  Company  manufactures 
men's  underwear  of  medium  grade.  Its  brand  is  widely 
advertised.  Is  its  product  in  the  class  of  convenience 
goods  or  in  the  class  of  shopping  goods? 

The  Dundee  Flour  Company  produces  high-grade 
branded  flour.  In  which  class  of  merchandise  is  its 
product  to  be  included? 

•  C.  C.  Parlin,  Merchandising  of  Textiles. 


30  MARKETING  PROBLEMS 

5.  Broadway  Department  Store — Silk  Buying 

The  silk  buyer  of  the  Broadway  Department  Store, 
New  York  City,  is  responsible  for  the  management  of 
the  silk  department  in  that  store  and  for  the  purchase 
of  silk  piece  goods.  The  store  aims  to  be  in  the  fore- 
front in  all  matters  of  style. 

If  a  poor  selection  of  merchandise  is  made,  the 
merchandise  is  disposed  of  at  mark-down  sales,  and  the 
department  is  rated  upon  the  net  profit  shown  on  the 
total  sales,  including  the  mark-downs.  The  purchases 
of  silk  goods  usually  are  made  two  to  three  months  in 
advance  of  the  opening  of  the  selling  season  in  the 
retail  store. 

What  style  influences  must  the  silk  buyer  of  the 
Broadway  Department  Store  take  into  account  in 
placing  orders  for  silk  goods? 


6.  LoNGSPUR  Clothing  Company — Style  Tendencies 

The  designer  of  the  Longspur  Clothing  Company 
begins  the  selection  and  development  of  the  styles  for 
a  new  season  about  three  months  before  the  salesmen 
start  out  to  solicit  orders  from  retailers  and  about  eight 
months  before  the  goods  are  offered  for  sale  to  the 
public  in  retail  stores.  There  are  two  seasons  each 
year,  the  spring  season  and  the  fall  season.  The  Com- 
pany manufactures  men's  and  youths'  clothing  in 
medium-price  lines. 

What  facts  can  this  designer  use  in  judging  style 
tendencies  for  this  business? 


THE  CONSUMER  61 

7.  Oxford  Adding  Machine  Company — New  Models 

The  Oxford  Adding  Machine  Company  frequently 
brings  out  new  models  of  its  machines.  The  product 
is  sold  direct  to  consumers  by  the  company's  salesmen. 
To  what  extent  should  the  company  permit  its  salesmen 
to  solicit  orders  from  customers  who  already  are  using 
earlier  models  of  this  company's  machines. 


8.  Monterey  Automobile  Coi\jpany — Style 

During  the  first  decade  of  the  growth  of  the  auto- 
mobile industry  numerous  manufacturers  brought  out 
annual  models  of  their  cars.  Some  changes  were  made 
annually  for  ''style" — that  is,  merely  to  have  some- 
thing new  and  different  from  previous  models.  At 
the  present  time  changes  in  models  are  less  frequent; 
many  are  based  chiefly  on  technical  improvements. 

Another  aspect  of  the  "style"  factor  in  marketing 
automobiles  is  indicated  in  the  following  statement, 
quoted  from  C.  C.  Parlin:  The  Merchandising  of 
Automobiles  (pages  15-16): — 

The  pleasure  car  involves  the  style  clement;  for  the 
pleasure  car  is  the  traveling;  representative  of  a  man's  taste 
or  refinement.  Few  people  see  the  kind  of  carpets  or 
draperies  we  have  in  our  home,  but  everyone  notices  the 
kind  of  a  car  we  drive,  and  a  dilapidated  pleasure  car,  like 
a  decrepit  horse,  advertises  that  the  driver  is  lacking  in 
funds  or  lacking  in  pride. 

Applied  to  pleasure  cars  the  style  element  dictates — 

1.  That  chanj^es  must  be  made  from  time  to  time  in 
those  features  that  determine  the  appearance  and  "talking 
points"  of  a  car. 

Style  in  the  automol)ile  means  more  than  paint,  uphol- 
stery and  body  lines;  it  includes  all  those  elements  which 


32  MARKETING  PROBLEMS 

are  the  subject  of  arbitrary  preference.  If,  for  an  example, 
the  number  of  cyhnders  in  a  car  is  selected  on  the  basis  of 
efficiency  or  cost,  the  number  of  cylinders  loses  the  style 
element  and  becomes  merely  a  part  of  the  mechanism.  But 
whenever  a  man  selects  his  number  of  cylinders  merely  as 
a  question  of  preference,  to  keep  up  with  his  neighbor,  to 
have  something  to  talk  about,  to  please  a  fancy,  with  him 
the  number  of  cjdinders  presents  the  phenomenon  of  style 
purchase. 

2.  That  within  any  given  class  a  manufacturer  cannot 
get  and  permanently  hold  much  more  than  50  per  cent  of 
his  market;  for  a  style  reaction  automatically  sets  in  against 
anyone  who  controls  a  majority  of  a  style  market. 

What  is  the  significance  of  these  statements,  from 
the  standpoint  of  the  Monterey  Automobile  Company? 
The  Monterey  car  has  a  well-established  market.  Its 
selling  price  is  about  $1,500.  The  car  is  well  designed 
and  is  unusually  economical  in  construction  and 
operation. 


9.    F.  W.  Pond  Company — Demand 

The  F.  W.  Pond  Company  operates  a  high-class 
delicatessen  store  in  one  of  the  large  cities  in  New 
England.  The  company  contemplates  opening  a 
similar  store  in  a  residential  town  about  20  miles  from 
the  city  in  which  its  main  store  is  located. 

What  information  regarding  the  possible  demand 
for  its  merchandise  in  this  new  location  should  be 
sought? 


THE   CONSUMER  33 

10.     Badger   Manufacturing   Company  —  Buying 
Habits  of  Consumers 

The  Badger  Manufacturing  Company  produces  en- 
amel ware  for  kitchen  use  in  a  wide  variety  of  articles 
and  styles  of  several  qualities.  The  company  has 
recently  decided  to  start  an  extensive  advertising 
campaign  in  order  to  increase  its  sales. 

What  are  the  buying  habits  and  motives  of  con- 
sumers purchasing  such  products,  which  the  advertising 
manager  of  the  Badger  IManufacturing  Company  should 
take  into  account  in  planning  this  campaign? 


11.  Stumblo  Pottery  Company — Variety  of  Styles, 
Patterns,  and  Sizes 

During  the  war,  in  accordance  with  the  schedule  of 
the  Conservation  Division  of  the  War  Industries 
Board,  the  Stumblo  Pottery  Company  made  a  substan- 
tial reduction  in  the  number  of  styles,  patterns,  and 
sizes  of  its  product.  The  Conservation  schedule  was 
as  follows: 

SCHEDULE    FOR   MANUFACTURERS    OF    VITRIFIED  CHINA 

1.  No  new  moulds  to  be  made  during  the  war  for  any  article 
not  on  the  restricted  list  and  no  new  dccalcomania  pat- 
terns or  copper  plate  engravings  to  be  added. 

2.  No  new  lines  to  be  placed  on  the  market,  even  in  cases 
where  the  decalcomanias  or  copper  plate  engravings 
are  made. 

3.  Special  designs  already  prepared  by  any  pottery  not  to 
be  duplicated  by  any  other  pottery  during  the  war. 

4.  During  the  period  of  the  war  each  manufacturer  to 
restrict  his  line  to  not  more  than  two  basic  hotel  shapes, 
to  be  known  as  "Rolled  Edge  and  Thick"  or  "Rolled 
Edge  and  Quarter  Thick." 


3" 

6" 

8" 

10" 

3" 

5" 

8" 

10" 

30s 

36s 

42s 

30s 

36s 

42s 

34  MARKETING  PROBLEMS 

5.  Each  manufacturer  also  to  restrict  his  line  to  one  basic 
shape  of  dinnorware  for  family  use. 

6.  The  above  three  lines  to  be  made  only  in  the  following 
articles : 

Bakers,  Thick  2i^" 

Bakers,  Rolled  Edge  2^" 

Bowls,  Thick  24s 

Bowls,  Rolled  24s 

Individual  Butters,  Thick  2i^" 

Individual  Butters,  Rolled  234"  or  3" 

Cake  Cover — 1 

Celery  Tray  or  Relish  Dish — 1 

Coffee  Pot — Individual 

Cups,  Coffee,  3  and  saucers  to  match 

Cups,  Extra  Tea,       2  and  saucers  to  match 

Cups,  Tea,  3  and  saucers  to  match 

Cups,  After  Dinner,  2  and  saucers  to  match 

Cups,  Bouillon,  2  and  saucers  to  match 

Comports— 5"       6"       7" 

Creams,  Individual — 1  oz.,  IJ^  oz.,  234  oz.,  4  oz.  (handled 

and  unhandled) 
Dishes,  Thick— 4"      6"      8"      10"       12" 
Dishes,  Rolled— 4"      6"      8"      10"       12" 
Grape  Fruit  Dish — 1 

Egg  Cups — Double  Boston  Wheat  or  Custard  (unhandled) 
Fruit  Saucers,  Thick — 3  sizes 
Fruit  Saucers,  Rolled — 3  sizes 
Ice  Creams,  Thick —  1  size 
Ice  Creams,  Rolled — 1  size 

Jugs—  6s  12s  24s  36s  42s  48s  54s  60s  72s 

Jugs,  Hall  Boy —      30s 
Match  Stand — 1  size 
Coffee  Mug — 2  sizes 
Mustard — 1  size 
Nappies,     8"      9" 
Nappies,  Cereal —    1  size 
Nappies,  Oatmeal — 1  size 
Nappies,  Oyster —    5" 

Plates,  Flat,  Thick— 4"      5"      6"      7"      8" 
Plates,  Flat,  Rolled— 4"      5"      6"      7"      8" 
Soups,  Thick—  5"  or  6"  (but  not  both)  7" 
Soups,  Rolled— 5"  or  6"  (but  not  both)  7" 
Coupe  Soups — 1 
Sick  Feeder — 1 
Grill  Plates— 2 
Pickle— 1 
Ramikin — 1 

Round  Salads-4"      5"      6"      7"      8"       11" 
Sauce  Boats — ^Nos.  12  3 


THE  CONSUMER  35 

Sugars,  Hotel — 1 
Sugars,  Hospital — 1 
Sugars,  Restaurant — 1 
Spittoon — 1 
Candle  Stick— 1 
Match  Safe— 1 
Brush  Vase — 1 
Soap — 1 

The  company  sells  its  product  to  retailers  through- 
out the  Eastern  half  of  the  United  States. 

What  conditions  influencing  demand  will  guide 
the  Stumblo  Pottery  Company  in  deciding  whether  or 
not  to  restore  styles  and  sizes  eliminated  in  accordance 
with  this  schedule  and  also  in  developing  new  styles, 
patterns,  and  sizes  for  family  use? 


12.    Seneca  Flour  Milling  Company — 
Package  Trade 

The  Seneca  Flour  Milling  Company  manufactures 
a  good  quality  of  flour  for  household  use.  This  flour 
is  sold  in  barrels,  and  also  in  quarter  barrels,  24}  2 
pound  bags,  5  pound  packages  and  3}^  pound  pack- 
ages. The  retail  price  for  the  smaller  packages  is 
25-33%  more  per  pound  than  the  retail  price  for  this 
flour  when  sold  by  the  barrel.  This  higher  price  is 
due  to  the  extra  cost  which  the  manufacturer  incurs  in 
packing  and  handling  flour  in  small  packages.  These 
small  packages  have  a  heavy  sale  in  the  tenement 
district  in  New  York  City. 

Is  the  Seneca  Flour  Milling  Company  justified  in 
selling  flour  in  small  packages'  for  this  trade  at  this 
price  differential? 

»See  P.  T.  Cherington,  Advertising  Book— 1916,  pp.  3-8,  497-506. 


30  MARKETING  PROBLEMS 

13.      Diamond    Sugar    Company — Package    Trade 

The  Diamond  Sugar  Company  operates  eight  beet 
sugar  factories  in  Colorado  and  some  of  the  adjoining 
states.  Up  to  this  time  the  company  has  sold  its 
product  entirely  in  bulk.  Its  sales  are  made  chiefly  to 
wholesale  grocers  in  the  Missouri  River  territory,  where 
its  product  comes  into  competition  with  cane  sugar 
from  Eastern  and  Southern  refineries. 

Beet  sugar  was  at  one  time  considered  to  be  of 
somewhat  poorer  quality  than  cane  sugar  and  was  sold 
at  a  slightly  lower  price.  A  statement  has  been  made, 
however,  in  a  bulletin  of  the  United  States  Department 
of  Agriculture  that  there  is  no  difference  in  the  sweet- 
ness of  beet  sugar  and  cane  sugar  and  that  experiments 
have  indicated  that  "under  both  commercial  and 
household  conditions  beet  sugar  and  cane  sugar  give 
equally  satisfactory  results  for  canning  fruit  and  also 
for  jelly  making. "^ 

Whatever  may  be  the  relative  merits  of  beet  and 
cane  sugar,  nevertheless  cane  sugar  ordinarily  is  sold 
at  a  somewhat  higher  price  than  beet  sugar  in  the 
same  markets. 

During  the  last  eight  or  ten  years  the  sales  of  sugar 
in  packages  have  heavily  increased  in  the  Eastern  part 
of  the  United  States.  Package  cane  sugar  is  intensify- 
ing the  competition  that  the  Diamond  Sugar  Company 
must  meet.  This  company  can  sell  its  sugar  in  two 
and  five  pound  cartons  at  an  increased  cost  to  the 
manufacturer  of  one-half  cent  per  pound.  This  addi- 
tional cost  is  no  greater  than  the  cost  incurred  by  cane 
sugar  refiners  in  packing  their  sugar  in  packages. 

Should  the  Diamond  Sugar  Company  undertake 
to  market  at  least  a  portion  of  its  product  in  packages? 

*  U.  S.  Department  of  Agriculture,  Farmers'  Bulletin  329,  May, 
1908. 


THE   CONSUMER  37 

14.     Milk  Trade,  New  York  City 

The  milk  dealers  in  New  York  City  had  to  face  the 
following  problem  in  the  fall  of  1919.  Although  the 
figures  stated  in  this  problem  are  not  exact,  they  are 
approximately  correct. 

The  cost  of  milk  and  operating  expenses  were  as 
follows  in  September,  1919: 

Per  Quart 

Cost  of  milk  (Grade  B)  to  the  city  dealer 

up  to  the  point  of  wagon  delivery.  .SO.  11 75 

Wagon  delivery 04 

Retail  selling  price 16 

Net  profit 0025 

Between  September  and  November  the  price  paid 
by  the  milk  dealers  to  the  country  producers  was 
raised  more  than  one  cent  per  quart.  The  milk  dealers 
find  it  necessary  to  purchase  enough  milk  in  the  coun- 
try to  insure  a  sufficient  supply  in  the  city  at  all  times 
in  spite  of  the  season  or  temperature.  Consequently 
there  is  always  some  surplus  left  in  the  dealers'  hands, 
which  must  be  manufactured  into  butter,  cheese,  and 
other  by-products.  The  bj^-products  manufactured  in 
the  autumn  usually  are  sold  at  a  loss  as  they  are  forced 
to  compete  on  the  market  with  similar  products  that 
were  placed  in  cold  storage  in  the  previous  spring, 
when  they  could  be  manufactured  in  country  districts 
at  a  lower  cost.  In  addition  to  this  surplus,  there  is  a 
material  shrinkage  in  bujdng  merchandise  by  the 
pound  and  s(»lling  by  the  package.  The  higher  price 
paid  to  country  producers  increased  the  cost  of  this 
purplus  as  well  as  the  cost  of  the  milk  sold  at  retail. 

Although  the  increase  in  the  price  paid  to  the 
country  producers  was  only  slightly  more  than  one 
cent,  it  was  necessary  for  the  milk  dealers  to  increase 
the  retail  price  in  the  city  two  cents  per  quart  in  order 
to  make  the  same  profit  as  before — .0025  cents  per 
quart.  The  New  York  retail  price  in  November,  1919, 
therefore,  was  increased  to  18  cents  per  quart. 

Prior  to  this  increase  in  price,  the  load  distributed 
in  the  city  per  wagon  had  been  worked  up  approxi- 


38  MARKETING  PROBLEMS 

mately  to  300  quarts  per  day.  With  the  increase  in  city 
prices,  the  average  load  immediately  dropped  to  about 
250  quarts  per  wagon.  From  past  experience  it  was 
known  that  it  would  take  some  time  to  get  back  to  a 
normal  load.  In  the  meantime  the  delivery  cost  had 
increased  from  4  cents  per  quart  to  4.8  cents  per  quart. 
This  turned  the  estimated  profit  of  .0025  cents  per 
quart  into  an  actual  loss  of  .0055  cents  per  quart. 

When  the  increase  in  the  retail  price  of  milk  occurred 
the  milk  drivers'  union  demanded  an  immediate  in- 
crease in  wages  from  $30  to  $50  a  week  and  an  addi- 
tional commission  of  2%  on  sales  with  shorter  hours. 
If  this  demand  were  to  be  granted,  this  increase  alone 
would  advance  the  delivery  cost  of  milk  more  than  one 
cent  per  quart. 

Because  of  the  decreased  retail  sales,  an  extra 
quantity  of  milk  had  to  be  manufactured  into  by- 
products. The  same  price  was  paid  in  the  country  for 
all  milk  whether  sold  at  retail  or  manufactured  into 
by-products.  The  necessity  of  using  a  larger  portion 
of  the  milk  for  the  manufacture  of  by-products  thus 
caused  an  additional  loss  to  the  dealers. 

The  consumers  were  not  pleased  with  the  high 
price  of  milk  in  the  city  and  several  organizations 
united  to  start  successfully  a  consumers'  strike  three 
days  a  week.  On  the  days  when  the  strike  was  in 
effect,  each  route  lost  on  an  average  50  quarts  in  sales. 
The  other  four  days  each  week  there  was  a  slight  gain, 
but  not  enough  to  offset  the  loss  on  other  days.  The 
consumers'  strike  against  the  high  price  of  milk 
increased  the  cost  of  delivery  more  than  .003  cents 
per  quart. 

What  policy  should  the  dealers  have  adopted  under 
these  circumstances? 


THE   CONSUMER  39 

15.    Sagamore  Tractor  Company — Information  to 
BE  Given  to  Prospective  Customers 

The  Sagamore  Tractor  Company  manufactures 
tractors  that  are  well  built,  to  stand  heavy  work.  For 
several  years  the  company  has  been  conducting  exten- 
sive experiments  and  also  has  secured  detailed  data  on 
the  operation  of  its  tractors  as  used  by  farmers  under  a 
variety  of  conditions  and  for  varied  purposes.  As  a 
result,  the  company  has  introduced  several  improve- 
ments in  its  motor  over  many  of  the  motors  used  by 
other  tractor  manufacturers.  It  also  has  improved 
the  design  of  the  tractor  substantially  in  other  respects. 
This  experimental  work  is  to  be  continued.  The 
Sagamore  Tractor  now  is  well  suited  for  use  on  large 
farms  in  numerous  sections  of  the  country.  It  is 
doubtful,  however,  if  this  tractor  can  be  used  at  the 
present  time  economically  on  farms  below  a  certain 
size  and  under  certain  conditions. 

In  its  advertising  and  sales  work,  should  technical 
information  regarding  the  construction  of  the  tractor 
be  presented  to  the  farmers  who  are  prospective  cus- 
tomers? Should  this  technical  information  be  specific 
or  general  in  character?  What  information  should  the 
Sagamore  Tractor  Company  undertake  to  give  to 
farmers  regarding  the  actual  performance  of  its 
product?  Should  the  Sagamore  Tractor  Company 
advise  farmers  in  any  way  regarding  the  limitations 
upon  the  use  of  its  tractor? 

What  advice  and  service  can  farmers  who  purchase 
Sagamore  Tractors  fairly  expect  to  receive  from  the 
manufacturer? 


PART  III 
RETAIL  TRADEi 

THESE  problems  illustrate  the  functions,  methods, 
expenses,  and  some  of  the  common  management 
problems  of  retail  merchants,  including  unit 
stores,  company  stores,  retail-wholesale  businesses, 
department  stores,  chain  stores,  manufacturers'  retail 
branches,  mail  order  houses,  cooperative  stores,  public- 
markets,  wagon  retailers,  and  bulk  retailers.  Problems 
in  the  selection  of  the  type  of  retail  outlet  to  be  em- 
ployed by  a  manufacturer  or  other  producer  also  are 
illustrated. 

16.    Roanoke  Manufacturing  Company — 
Unit  Stores 
A  unit  store  is  a  store,  without  an  elaborate  depart- 
mental organization,  that  is  owned  and  managed  as 

1  General  references  on  retail  trade  are:  P.  H.  Nystrom,  Economics 
of  Retailing  and  Retail  Store  Management.  P.  T.  Cherington,  Adivr- 
tising  as  a  Business  Force  and  Advertising  Book — 1916.  Butler,  De- 
Bower,  and  Jones,  Marketing  Methods.  A.  W.  Shaw,  Some  Problems 
of  Market  Distribution.  James  W.  Fisk,  Retail  Selling.  Clifton  C. 
Field^  Retail  Buying.  W.  Sammons,  Keeping  Up  With  Rising  Costs. 
A.  \\.  Shaw  Company,  IIoiv  to  Run  a  Store  at  a  Profit,  Making  Your 
Store  Work  For  You,  Attracting  and  Holding  Customers,  and  Making 
More  Out  of  Advertising.  W.  R.  Ilotchkin,  Manual  of  Successful 
Storekeeping.  Curtis  Publishing  Company,  Selling  Forces.  Com- 
mercial Economy  Board,  Economy  in  Retail  Service.  Bureau  of 
Business  Research,  Harvtird  University,  Bulletin  No.  2,  "System,  of 
Accounts  for  Shoe  Retailers;"  Bulletin  No.  3,  "System  of  Accounts  for 
Retail  Grocers;"  Bullelin  No.  4,  "Depredation  in  the  Retail  Shoe  Busi- 
ness;" Bulletin  No.  7,  "System  of  Stock-keeping  for  Shoe  Retailers;" 
Bulletin  No.  10,  "Management  Problems  in  Retail  Shoe  St(ves,  1913-17;" 
Bulletin  No.  11,  "System  of  Operating  Accounts  for  Hardware  Retailers;" 
Bulletin  No.  12,  "Operating  Expenses  in  Retail  Hardware  Stores,  1917- 
18;"  Bulletin  No.  13,  "Management  Problems  in  Retail  (irocery  Stores, 
1918;"  Bulletin  No.  15,  "Operating  Accounts  for  Retail  Jewelry  Store.'^; 
Bulletin  No.  16,  "Operating  Accounts  for  Retail  Drug  Stores;"  Bulletin 
No.  18,  "Operating  Expenses  in  Retail  (Irocery  Stores  in  1919;"  Bulletin 
No.  20,  "Operating  Expenses  in  Retail  Shoe  Stores  in  1919." 

The  files  of  business  magazines,  such  as  Sysleni,  Printers'  Ink, 
Advertising  and  Selling,  contain  nimiorous  articles  that  afford  valuable 
suggestions  on  the  solution  of  the  problems  of  retail  trade.  For  each 
trade,  furthermore,  there  are  several  trade  pai^ers. 

41 


42  MARKETING  PROBLEMS 

an  independent  unit  for  the  sale  of  goods  through 
personal  salesmanship.  It  is  still  the  most  common 
type  of  retail  store  in  the  United  States. 

The  Roanoke  Manufacturing  Company  recently 
put  a  new  baking  powder  on  the  market.  This 
company  had  several  other  products  that  were  sold 
chiefly  to  manufacturers  and  large-scale  users.  The 
new  baking  powder  was  the  first  article  that  this 
company  had  manufactured  for  household  use.  The 
Roanoke  Manufacturing  Company  decided  to  sell  its 
new  baking  powder  through  unit  stores. 

What  are  the  advantages  and  the  disadvantages  of 
this  type  of  marketing  outlet  for  this  product? 

What  methods  can  be  utilized  by  the  Roanoke 
Manufacturing  Company  to  stimulate  the  proprietors 
of  the  unit  stores  to  take  an  active  interest  in  pushing 
the  sale  of  this  product? 


17.     F.   K.   Williams — Cost  of  Doing   Business 

Mr.  F.  K.  Williams  operates  a  retail  hardware  store 
in  a  town  in  New  Hampshirei.  His  books  show  the 
following  entries  for  the  year  ending  December  31, 
1919:  net  inventory  of  merchandise  at  beginning  of 
year  $20,733,  net  inventory  of  merchandise  at  end  of 
year  $18,377,  net  sales  $61,460,  purchases  of  merchan- 
dise at  billed  cost  $43,763,  inward  freight  and  cartage, 

*  See  Bureau  of  Business  Research,  Harvard  University,  Bulletin 
No.  11,  "System  of  Operating  Accounts  in  Retail  Hardware  Stores; 
Bulletin  No.  12,  "Operating  Expenses  in  Retail  Hardware  Stores,  1917- 
18;"  Bulletin  No.  21,  "Operating  Expenses  in  Retail  Hardware  Stores 
in  1919." 


RETAIL  TRADE  43 

$1,197,   cash  discounts  taiken  $1,242,  total  expense 
$13,134. 

What  were  his  percentages  of  gross  profit,  net  profit 
and  total  expense?    What  was  his  rate  of  stock-turn? 


18.     Rogers  &  Brown — Cost  of  Doing  Business 

Rogers  &  Brown  conduct  a  retail  grocery  store  in  a 
town  in  Pennsylvania.  Their  statement  for  the  year 
ending  December  31,  1919,  was  as  follows: — Net 
sales  $65,107;  net  inventory  of  merchandise  January 
1,  1919,  $7,225;  purchases  of  merchandise  at  billed 
cost  $55,582;  inward  freight  and  cartage  $382;  cash 
discounts  taken  $207;  net  inventory  of  merchandise 
December  31,  1919,  $9,778;  wages  of  sales  force 
$4,622;  advertising  $17;  wrappings  and  other  selhng 
expense  $373;  wages  of  dehvery  force  $1,134;  other 
delivery  expense  $793;  buying,  management  and  office 
salaries  $1,237;  office  supphes,  postage,  and  other 
management  expense  $92;  rent  $750;  heat,  light,  and 
power  $276;  taxes  $97;  insurance  $200;  repairs  of 
store  equipment  $158;  depreciation  of  store  equip- 
ment $231;  interest  on  capital — borrowed  S97;  interest 
on  capital — owned  $606;  miscellaneous  expense  $394; 
losses  from  bad  debts  $134. 

The  proprietors  of  this  store  beHeve  that  their 
business  might  be  made  more  profitable.  What  sug- 
gestions should  be  given  them  for  analyzing  their 
business  in  order  to  learn  how  it  may  be  made  to  show 
greater  profits? 


44  MARKETING  PROBLEMS 

19.     BuRNsiDE  Clothing  Company — Flat  Mark-up 

The  Burnside  Clothing  Company  has  a  store  situa- 
ted in  a  suburb  of  Chicago.  This  suburb  has  a  popula- 
tion of  about  50,000  people.  Three  neighboring  sub- 
urbs have  a  population  of  about  12,000  each.  These 
suburbs  are  located  about  12  to  15  miles  from  the  cen- 
ter of  the  city.  The  three  smaller  suburbs  have  elec- 
tric car  service  to  the  large  suburb,  which  in  turn  is 
connected  with  the  city  by  steam  and  electric  lines. 

The  annual  sales  of  this  retail  store,  which  sells 
men's  shoes  and  men's  clothing,  are  about  $175,000 
roughly  one-third  shoes,  and  two-thirds  clothing.  Of 
the  shoes  sold  about  65%  retail  for  $8.00  per  pair, 
(1918  prices),  about  25%  for  less  and  about  10%  for 
more  than  that  figure.  This  store  competes  at  present 
mainly  with  smaller  suburban  stores  in  medium  and 
low-price  goods  and  with  large  city  stores  in  medium 
and  high-price  goods.  The  sales  of  the  shoe  depart- 
ment of  this  store  now  yield  an  average  gross  profit 
of  32%. 

The  proprietors  of  this  store  propose  in  the  future 
to  sell  all  shoes  at  a  flat  gross  mark-up  of  $1.00  per  pair. 
For  example,  a  pair  of  shoes  costing  them  $5.50  would 
be  sold  at  retail  in  this  store  under  the  new  plan  at 
$6.50.  This  policy  they  propose  to  make  the  most 
conspicuous  feature  of  their  advertising.  They  also 
propose  to  preserve  the  quality  of  their  goods.  The 
mark-up  on  clothing  would  continue  as  at  present. 

What  probably  would  be  the  effect  on  their  trade 
of  the  adoption  of  such  a  policy?  Is  it  advisable  for 
them  to  adopt  it? 


RETAIL  TRADE  45 

20.      Tripod    Retail    Grocery    Company — Three- 
Way  Plan 

The  Tripod  Retail  Grocery  Company  operating  a 
high  class  retail  grocery  store,  selling  both  staple  goods 
and  fancy  groceries,  adopted  the  so-called  "three-way 
plan"  in  November,  1917,  to  meet  war  conditions.  Its 
goods  were  all  priced  on  a  cash,  non-delivery  basis. 
For  delivery  an  extra  charge  was  made,  and  any  cus- 
tomer who  desired  a  credit  account  was  required  to 
pay  a  specific  amount  monthly  for  that  service. 

The  company  operated  several  branches  and  its 
sales  were  upwards  of  half  a  million  dollars  a  year. 
During  the  war  this  change  in  policy  was  successful;  it 
enabled  the  company  to  operate  with  fewer  employees 
and  to  price  its  goods  at  lower  figures.  It  also  aided  the 
company  in  meeting  chain  store  competition.  Although 
several  competing  unit  stores  tried  this  three-way  plan, 
few  of  them  adhered  to  it  for  any  length  of  time. 

Was  it  advisable  for  this  company  to  continue  to 
use  the  three-way  plan  after  the  end  of  the  war? 


21.    Monadnock  Food  Products  Company — 
Dealer  Help 

The  Monadnock  Food  Products  Company  is  con- 
sidering the  adoption  of  some  plan  of  dealer  help,  in 
order  to  strengthen  its  prestige  among  the  retail  mer- 
chants who  sell  its  products.  The  company  produces 
high-grade  canned  goods.  It  employs  specialty  sales- 
men for  soliciting  drop-shipment  orders  from  retailers. 

On  making  inquiry,  it  has  found  that  one  large  firm 
of  wholesalers  in  the  hardware  trade  has  one  man  on 
its  staff  who  devotes  practically  all  his  attention  to 


46  MARKETING  PROBLEMS 

advising  retail  customers  regarding  their  problems  in 
store  management  and  in  keeping  their  accounts. 
Butler  Brothers,  catalogue  wholesalers  in  Chicago, 
furnish  advice  to  prospective  customers  regarding 
advantageous  locations  for  opening  new  variety  stores. 
Butler  Brothers  also  assist  their  customers  in  planning 
special  sales  and  in  getting  out  store  papers.  They 
arrange  to  furnish  price  tickets,  window  cards,  and 
other  features  that  are  necessary  for  special  sales. 
They  also  prepare  and  furnish  copy  for  circulars  and 
sales  announcements. 

John  Lucas  and  Company,  paint  manufacturers  of 
Philadelphia,  have  adopted  a  plan  which  they  call 
"100%  Selling,"  whereby  each  customer  who  is 
interested  is  given  a  hst  of  questions  to  answer. i 
These  questions  are  expected  to  indicate  the  strong 
points  of  the  retailer  in  managing  his  business  and 
also  to  suggest  the  opportunities  for  improving  his 
methods.  They  cover  accounting  methods  and  espe- 
cially selling  policies  and  methods  of  increasing  sales. 

The  Sherwin-Williams  Company  of  Cleveland, 
paint  manufacturers,  have  a  retailers'  service  depart- 
ment^ which  furnishes  advice  to  customers  regarding 
accounting,  display,  and  other  problems  that  arise 
frequently  in  these  stores.  Several  other  manufacturers 
in  various  industries  have  adopted  similar  plans  for 
"dealer  help."3 

What  plan  of  "dealer  help"  is  likely  to  prove  most 
effective  for  the  Monadnock  Food  Products  Company? 


1  John  Lucas  &  Ck).,  100%  Retail  Selling. 

2  Frederick  C.  Kuhn,  "How  to  Establish  and  Carry  On  an  Effective 
Service  Department  for  Retailers,"  Printers'  Ink,  February  8,  1917, 
pp.  3-12,  102-106. 

sSee  also  P.  T.  Cherington,  Advertising  as  a  Business  Force, 
pp.  127-155  Kendall  Banning,  "Why  He  Lost  My  Trade,"  System, 
June,  1916,  pp.  628-635. 


RETAIL  TRADE  47 

22.    Georgian  Clothing  Company 
Exclusive  Agency 

The  Georgian  Clothing  Company  of  New  York 
City  has  been  developing  leadership  in  the  style  and 
quality  of  the  boys'  clothing  that  it  manufactures. 
The  company  has  decided  to  adopt  a  system  of  exclu- 
sive agencies  throughout  the  United  States  for  the 
sale  of  its  product.  One  retailer  in  each  city  or  town 
will  be  given  the  sole  right  to  sell  its  product  in  his 
territory.  The  product  is  to  be  branded  and  adver- 
tised by  the  manufacturer.  Such  advertising  as 
retailers  undertake  will  be  on  their  own  account. 

What  are  the  advantages  and  the  disadvantages  to 
the  Georgian  Clothing  Company  of  using  this  system 
of  exclusive  agencies?^ 

Mr.  W.  K.  Smith,  who  operates  a  clothing  store  in 
one  of  the  larger  cities,  has  been  given  the  opportunity 
to  become  the  exclusive  agent  for  the  Georgian  Cloth- 
ing Company  in  his  territory.  What  would  be  the 
advantages  and  the  disadvantages  to  him  of  the 
exclusive  agency  plan? 


23.    Penwick  Company — Exclusive  Agency  — 

The  Penwick  Company  operates  a  large  retail  and 
wholesale  grocery  business  in  Philadelphia.  It  special- 
izes in  fancy  groceries  and  imported  goods  sold  under  its 
own  brands.  It  also  sells  large  quantities  of  staple 
groceries.  The  traveling  salesmen  for  its  wholesale 
department  cover  a  territory  of  about  300  miles  radius 
from  Philadelphia. 

1 S.  Roland  Hall,  "National  Advertisers  Estimate  Value  of 
Exclusive  Agencies,"  Printers'  Ink,  September  4,  1913,  pp.  3-11. 
M.  Zimmerman,  "An  Investigator's  Report  on  Exclusive  Agencies," 
Printers'  Ink,  April  30,  1914,  pp.  37-47;  May  7,  1914,  pp.  84-92;  May  28, 
1914,  pp.  76-84. 


48  MARKETING  PROBLEMS 

Mr.  J.  K.  Lawson,  who  operates  a  grocery  store  in 
a  town  in  New  Jersey,  has  requested  the  exclusive 
agency  for  Penwick  goods  in  his  town.  The  town 
where  his  store  is  located  has  a  resident  population  of 
2200.  During  the  summer  months  the  population  is 
increased  by  the  influx  of  over  1000  people  each  year, 
from  Philadelphia,  New  York  and  other  cities.  These 
summer  visitors  are  well-to-do,  and  many  of  them  own 
cottages  and  summer  homes  in  this  town.  There  is 
also  a  large  summer  hotel  in  the  town.  In  addition  to 
the  Lawson  store  there  are  three  other  grocery  stores. 
These  other  stores  are  less  attractive  in  appearance 
and  poorer  credit  risks.  The  Lawson  store  is  unques- 
tionably the  best,  and  it  has  a  good  credit  rating. 

The  Penwick  Company  has  sold  to  all  these  stores 
in  the  past.  It  also  has  sold  direct  to  the  hotel.  The 
retail  branch  of  the  Penwick  Company,  furthermore, 
ships  mail  orders  by  express  direct  to  consumers  in 
this  town  during  the  summer.  Other  wholesale  grocers 
in  Philadelphia  and  New  York  compete  for  orders  from 
retailers  and  the  hotel. 

The  Penwick  Company  never  has  granted  exclusive 
agencies.  If  this  request  of  Mr.  Lawson  is  granted,  it 
would  be  for  an  indefinite  period  which  could  be 
terminated  at  will  by  either  party.  The  Penwick 
Company,  furthermore,  would  not  be  obHged  to  dis- 
continue its  sales  to  the  hotel  or  to  refuse  the  acceptance 
of  mail  orders  direct  from  consumers. 

Should  the  Penwick  Company  grant  Mr.  Lawson 
the  exclusive  agency? 


RETAIL  TRADE  49 

24.     Ironstone   Company — Sale   of  Stock  to 
Customers 

The  Ironstone  Company,  with  a  small  plant  in 
Pennsylvania,  manufactures  hammers.  The  company 
has  a  well-established  reputation.  Its  annual  sales 
amount  to  $300,000.  Its  product  is  sold  to  about  one- 
fifth  of  the  hardware  stores  in  the  United  States.  The 
Ironstone  Company  now  proposes  reorganization.  The 
main  features  of  the  plan  are: — a  stock  company  with 
a  capitalization  of  S400,000  ($200,000  preferred  and 
$200,000  common).  The  common  stock  is  to  be  ab- 
sorbed by  the  present  company  for  the  plant  at  ap- 
praised value,  about  $50,000,  and  the  remainder  for 
trademark,  goodwill  and  selling  rights.  The  preferred 
stock  is  to  be  offered  to  the  hardware  trade  exclusively 
(including  both  retailers  and  wholesalers).  The  pre- 
ferred stock  is  to  be  issued  in  $100  shares.  The  mini- 
mum holding  is  to  be  $200.  Each  preferred  stock- 
holder is  to  have  exclusive  local  right  to  own  stock  and 
to  sell  this  product.  The  preferred  stock  is  partici- 
pating, voting,  but  not  cumulative.  All  earnings  above 
7%  on  the  entire  capital,  and  a  suitable  reserve,  are 
to  be  divided  equally  among  both  kinds  of  stock.  The 
business  of  the  Ironstone  Company  is  to  be  expanded, 
if  this  organization  is  sufficiently  successful,  to  manu- 
facture and  sell  other  hardware  products. 

Mr.  W.  K.  Barlow,  a  hardware  retailer,  has  been 
offered  the  opportunity  to  become  the  exclusive  stock- 
holder of  the  Ironstone  Company  in  his  city.  Mr. 
Barlow  operates  a  retail  hardware  store  with  annual 
sales  of  $87,000.  The  business  is  that  of  a  typical  hard- 
ware retailer  and  shows  about  the  average  profits. 

What  must  Mr.  Barlow  consider  in  deciding; 
whether  or  not  to  purchase  this  stock? 


50  MARKETING  PROBLEMS 

25.    Pensacola  Iron  Works — Company  Store 

The  Pensacola  Iron  Works,  which  employs  about 
2,000  men,  has  been  requested  by  a  committee  of 
employees  to  establish  a  store^  for  the  sale  of  food 
products.  It  is  proposed  that  the  merchandise  should 
be  sold  at  prices  that  would  cover  the  wholesale  cost 
plus  the  actual  operating  expenses  of  the  store.  The 
Pensacola  Iron  Works  would  assume  the  responsibility 
for  the  management  and  operation  of  the  store. 

The  plant  of  this  company  is  located  in  the  southern 
part  of  a  city  of  25,000  population.  There  are  good 
street  car  connections  between  the  plant  and  other 
parts  of  the  city.  The  store,  if  opened,  would  be 
located  close  by  the  manufacturing  plant  or  in  one  of 
its  warehouses. 

At  the  present  time  there  are  about  a  dozen  retail 
grocery  stores  in  the  city.  These  stores  are  operating 
under  typical  conditions. 

Should  the  company  comply  with  this  request? 


26.    Manitowoc  Hardware  Company — Retail  and 
Wholesale  Store 

The  Manitowoc  Hardware  Company  operates  a 
large  retail  hardware  store  in  Wisconsin.  The  annual 
sales  of  this  company  are  approximately  $172,000. 

1  Numerous  company  stores  of  this  sort  have  been  estabhshed 
during  the  last  few  years  by  industrial  and  public  service  cornpanies. 
The  Interboro  Rapid  Transit  Company,  for  example,  established  a 
store  in  New  York  City  which  was  successful  for  a  few  months,  but 
which  thereafter  lost  its  patronage  and  the  company  closed  it.  The 
American  Woolen  Company  established  a  store  at  its  mills  in  Lawrence, 
Massachusetts,  in  1919,  in  order  to  reduce  the  cost  of  hving,  according 
to  the  pubUshed  statements. 

In  addition  to  these  company  stores  of  recent  origin,  there  are 
also  a  substantial  number  of  commissaries  operated  by  mining  com- 
panies, lumber  companies,  and  similar  enterprises.  The  commis- 
saries axe  generally  operated  with  a  view  to  showing  a  nominal  profit. 


RETAIL  TRADE  51 

The  company  has  the  exclusive  agency  in  its  territory 
for  a  widely  advertised  brand  of  paint,  which  it  buys 
direct  from  the  manufacturer.  It  also  buys  some  other 
products  direct  from  manufacturers,  but  for  a  large 
portion  of  its  purchases  it  finds  it  necessary  to  go  to 
wholesalers.  The  company's  business  has  been  steadily 
expanding,  and  the  company  is  in  a  strong  financial 
position.  The  town  in  which  the  store  is  located  is 
surrounded  by  a  rich  agricultural  country  and  new  in- 
dustrial enterprises  are  being  started  from  time  to  time. 

Although  the  Manitowoc  Hardware  Company  has 
no  specific  grounds  for  complaint  against  the  whole- 
salers from  whom  it  purchases,  it  believes  that  it  might 
be  able  to  secure  some  saving  in  its  purchases  if  it  were 
able  to  buy  direct.  The  company  therefore  is  con- 
sidering the  establishment  of  a  wholesale  business  to 
be  operated  jointly  with  its  retail  store. 

What  specific  problems  will  the  Manitowoc  Hard- 
ware Company  encounter, i  if  it  does  attempt  to 
operate  a  retail-wholesale  business? 


27.     Chatham   Company — Department   Store 

A  department  store,  according  to  the  customary 
usage  of  the  term,  is  a  retail  store  organized  on  a 
departmental  system  in  which  one  of  the  large  de- 
partments is  dry  goods. 

The  Chatham  Company,  a  department  store  locat- 
ed in  one  of  the  large  cities,  has  an  annual  volume  of 
sales    of    $21,000,000.     Its    operating    expenses    are 

1  See  Arthur  Cobb,  Jr.,  "Curbing  the  Retailer's  Jobbing  Ambi- 
tions," PrirUers'  Ink,  April  29,   1920,  pp.   105-115. 


52  MARKETING  PROBLEMS 

approximately  $5,890,000  a  year.  It  is  a  typical 
department  store. 

Wherein  lie  its  chief  advantages  in  competition 
with  other  types  of  retail  establishments? 

The  following  statement  was  made  in  an  editorial 
in  a  business  magazine  in  1917: — 

The  principal  trouble  is  that  the  department  store  is 
top-heavy.  It  is  burdened  with  an  unwieldy  service  system 
that  from  very  simple  beginnings  has  grown  to  be  so  luxurious 
and  so  wasteful  that  it  saps  the  efficiency  of  the  store. 

But  though  this  amazingly  ramified  gratuitous  service 
may  be  burdensome,  it  seems  to  be  absolutely  essential  to 
the  department  store,  as  at  present  conducted.  It  is  the 
store's  greatest  asset — the  raison  d'etre  for  this  system  of 
retailing.  In  the  first  years  of  the  department  store,  economy 
was  its  chief  appeal  and  could  have  been  made  truthfully. 
This  is  no  longer  the  case. 

The  department  store  idea  came  into  existence  in  this 
country  in  the  price  readjustment  period  following  the  Civil 
War.  At  that  time  the  prices  of  nearly  all  conomodities 
began  to  drop.  Competition  became  keen  and  the  old 
school  of  retailing  was  sorely  tried.  New  methods  of  selling 
came  into  vogue.  Gradually  the  plan  of  buying  for  cash, 
selling  at  a  small  profit  and  turning  goods  rapidly  came  into 
being.  The  "sale"  became  popular.  It  was  in  this  period 
that  a  great  impetus  was  given  to  production,  owing  to  the 
widespread  adoption  of  machinery  in  manufacturing.  But 
there  were  no  well-established  channels  of  distribution  at 
this  time  and  manufacturers  did  not  know  how  to  create 
markets  as  they  do  now.  Consequently  over-production 
often  resulted.  Goods  had  to  be  sold  to  the  best  bidder. 
These  conditions  favored  the  price-selling  methods  of  the 
department  store  and  fostered  its  growth. 

Then,  gradually,  the  idea  of  trade-marking  begun  to 
spread.  Advertising  gave  branded  articles  a  national  stand- 
ing. Distribution  was  standardized,  and  advertising  manu- 
facturers were  no  longer  at  the  mercy  of  sellers.  This 
movement  toward  the  nationalization  of  merchandise  has 
been  going  on  for  thirty  years.  Many  department  stores 
have  always  opposed  it.  Even  to-day  much  of  their  adver- 
tising and  merchandising  is  based  on  the  old  methods  that 
prevailed  when  markets  were  demoralized  and  when  manu- 
factured articles  had  no  identity  and  no  standing  with  the 
public.  Working  as  they  are  against  the  current  in  dis- 
tribution, is  it  any  wonder  that  department  stores  have 
found  the  adoption  of  unlimited  service  so  essential  to  their 
existence? 


RETAIL  TRADE  53 

What  reply  to  this  statement  should  be  made  by 
the  president  of  the  Chatham  Company. 


28.  Orchard  Company — Scrim  Curtains 

The  Exeter  Company  has  been  organized  to  engage 
in  the  manufacture  of  high  grade  scrim  curtains,  the 
plant  to  be  located  in  New  York  City.  The  manu- 
facturing capacity  will  be  as  large  as  that  of  any 
individual  competitor.  Credit  resources  are  ample. 
The  type  of  sales  organization  to  be  formed  depends 
upon  the  method  of  distribution  adopted. 

Through  what  class  of  retail  stores  can  the  Exeter 
Company  expect  to  sell  its  products  to  the  best 
advantage? 


29.    Titan  Company — Men's  Furnishings 

The  Titan  Company,  which  manufactures  men's 
furnishings,  has  built  up  a  large  market  for  its  product 
in  the  East  and  Middle  West.  The  bulk  of  its  output 
has  been  sold  under  retailers'  private  brands  to  de- 


54  MARKETING  PROBLEMS 

partment  stores.     The  company  is  now  considering 
the  possibilities  of  developing  its  trade  in  the  South. 
What  changes  in  its  selling  policy  probably  will  be 
necessary  for  that  market? 


30.   Laurel  Clothing  Company — Exclusive  Agency 

The  Laurel  Clothing  Company  wishes  to  secure  an 
exclusive  agent  in  a  large  eastern  city.  The  company 
has  a  strong,  well-established  reputation  for  good 
quality  clothing  for  men,  in  conservative  but  up-to- 
date  styles.  It  advertises  nationally.  Heretofore  the 
company  has  sold  clothing  unbranded  to  several  stores 
in  this  city.  Now  it  wishes  to  have  its  branded  product 
featured  in  this  city  and  has  decided  that  some  sort  of 
an  exclusive  agency  plan  is  desirable. 

In  this  city  there  is  a  department  store  of  good 
reputation  which  handles  clothing,  but  does  not  have 
the  exclusive  agency  for  any  manufacturer.  There  are 
also  several  small  clothing  stores  which  might  be  con- 
sidered for  agencies. 

What  reasons  favor  the  selection  of  the  department 
store  as  the  exclusive  agent?  What  considerations 
favor  some  one  of  the  available  specialty  clothing  stores? 


RETAIL  TRADE  55 

31.      W.    K.    Smith — Ladies'    Ready-to- Wear 
Department 

Mr.  W.  K.  Smith  has  operated  a  men's  clothing 
store  in  the  shopping  district  of  one  of  the  larger  cities 
of  the  United  States  for  a  long  period  of  years.  The 
name  of  this  store  is  well  known  and  it  has  a  well 
established  clientele.  It  carries  a  full  Hne  of  men's 
and  boys'  clothing  and  furnishings.  The  merchandise 
that  it  sells  is  of  good  quality  and  medium  priced. 

Recently  several  department  stores  in  the  same 
district  have  opened  men's  clothing  and  furnishings 
departments.  To  meet  this  competition  it  has  been 
suggested  that  Mr.  Smith  should  establish  a  depart- 
ment for  ladies'  garments  and  other  wearing  apparel 
in  his  store. 

Is  this  likely  to  be  an  effective  means  of  competition? 


32.    Siegel  Company 

The  Siegel  Company  went  into  bankruptcy  Decem- 
ber 30,  1914.  The  following  subsidiaries  were  in- 
volved:— 14th  Street  Store,  New  York;  Simpson  & 
Crawford,  New  York;  Henry  Siegel  Company,  Boston; 
Henry  Siegel  &  Company  (bankers  and  wholesalers). 
New  York;  Merchants  Express  Company,  New  York. 
Two  other  subsidiaries,  operating  department  stores, 
later  became  involved. 

The  store  operated  in  Boston  was  one  of  the  largest 
department  stores  in  the  city.  When  Mr.  Siegel  went 
to  Boston,  is  was  stated  that  he  declared  that  he  was 
willing  to  pay  $1,500,000  for  the  good-will  of  a  depart- 
ment store  in  this  cit}'.  He  was  not  able  to  find  an 
opportunity  to  purchase;    therefore,  he  built  a  new 


56  MARKETING  PROBLEMS 

store  which  was  opened  in  1906  at  the  corner  of  Essex 
and  Washington  Streets,  several  blocks  distant  from 
the  other  department  stores  of  the  city.  It  was  stated 
that  he  believed  that  he  could  establish  a  good-will  by 
spending  $1,000,000;  that  is,  he  expected  to  lose 
$500,000  the  first  year,  $300,000  the  second  year,  and 
$200,000  the  third  year,  but  to  be  able  to  show  a  profit 
soon  thereafter.  It  was  further  stated  that  with  sales 
of  $5,000,000  he  figured  a  loss,  but  with  sales  of  $7,000,- 
000  a  profit.  As  a  matter  of  fact,  it  was  reported  at 
the  time  of  the  failure  that  the  sales  never  had  exceeded 
$6,000,000  a  year,  and  that  in  1912  the  net  profit  was 
only  $50,000. 

What  factors  apparently  were  given  insufficient 
consideration  in  establishing  this  store  in  Boston? 


33.     Granite   Department  Store   Company — 
Furniture  Department 

March  21,  1919. 
Bureau  of  Business  Research, 

Harvard  University, 

Cambridge,  Massachusetts. 
Dear  Sirs: 

One  of  the  most  fruitful  fields  of  investigation  would  be 
that  of  furniture,  and  I  am  placing  this  matter  before  j'ou 
in  the  hope  that  your  department  will  take  up  this  branch 
of  retailing  and  attempt  a  similar  reform.  So  far  as  the 
retail  department  stores  are  concerned,  I  believe  there  is  no 
department  that  is  less  scientifically  managed  than  fur- 
niture. The  turnover  is  very  small,  the  investment  is  verj'- 
large,  and  the  amount  of  floor  space  necessary  for  proper 
display  requires  an  expenditure  of  rent  that  in  Cleveland 
has  driven  all  but  two  of  the  important  furniture  departments 
of  this  city  into  outlying  districts. 

What  has  made  good  operation  in  furniture  difficult  has 
been  the  attitude  of  the  average  department  store  owner. 


RETAIL  TRADE  57 

In  the  first  place,  the  department  store  proprietor  or  man- 
ager as  a  rule  is  not  primarily  a  furniture  man.  His  furni- 
ture department  has  been  a  later  addition  to  his  already 
substantial  growth.  Secondly,  he  has  hesitated,  because  of 
his  ignorance,  to  apply  the  principles  of  stock  turnover  and 
merchandising  which  have  been  successful  in  his  other 
departments,  because  of  the  representations  made  by  so 
many  in  the  furniture  field  that  a  good  turnover  is  impossible. 
Thirdly,  the  character  of  relationship  which  exists  between 
the  furniture  manufacturer  and  the  retail  buyer  of  furniture 
has  been  developed  in  a  way  that  is  not  productive  of  the 
best  results.  The  semi-annual  furniture  shows  at  Grand 
Rapids  have  had  a  tendency  to  make  the  buyer  purchase 
less  frequently  and  more  in  bulk  at  each  period,  and  due  to 
the  competition  created  by  the  manufacturer  between  pros- 
pective purchasers  of  furniture  all  in  the  market  at  the 
same  time,  the  average  buyer  has  exhibited  a  tendency  to 
over-reach  in  his  purchasing. 

Briefly,  these  are  the  principal  problems  with  respect  to 
the  furniture  business.  I  am  writing  you  principally 
because  I  believe  that  the  number  of  departments  in  this  line 
that  are  making  money  is  a  very  small  one  and  that  a  little 
reform  in  the  right  direction  would  make  it  possible  for  a 
large  number  of  them  to  come  out  on  the  right  side  of  the 
ledger. 

Yours  very  truly, 
The  Granite  Department  Store  Company, 
,  President. 

What  considerations,  other  than  those  mentioned 
in  this  letter,  should  be  taken  into  account  by  the 
chief  executive  of  a  department  store  who  is  prompted 
to  give  especial  attention  to  his  furniture  department? 


34.    Lapwing  Company — Buying  Silk  Goods 

The  Lapwing  Company,  a  department  store  in  a 
New  England  industrial  city  of  over  100,000  popula- 
tion, with  annual  sales  of  $750,000,  had  placed  orders 


58  MARKETING  PROBLEMS 

on  November  1,  1919,  for  50%  of  its  supply  of  silk 
piece  goods  for  the  coming  spring  season.  This  was  in 
accordance  with  its  general  policy  of  ordering  about 
one-half  of  its  supply  at  the  first  showing  of  goods 
by  the  manufacturers. 

The  sales  of  the  dry  goods  department,  including  all 
kinds  of  piece  goods,  then  amounted  to  approximately 
55%  of  the  total  sales  in  the  store. 

In  view  of  the  conditions  in  the  silk  market  on 
November  1,  1919,  and  of  general  business  conditions 
in  this  country  and  foreign  markets  at  that  time,  the 
president  of  this  store  had  occasion  to  consider  whether 
he  should  immediately  increase  his  orders  for  silk  piece 
goods  for  spring  delivery  or  hold  his  orders  as  they 
stood,  postponing   additional    purchases    until    later. 

On  the  basis  of  the  information  then  available,  ^what 
policy  should  have  been  followed? 


35.    Chain  Stores 

A  chain  store  system  is  a  group  of  scattered  stores 
with  single  ownership  and  centralized  management. - 
Mr.  Charles  K.  Stevens,  a  financier  with  extensive 

'  See  trade  papers,  such  as  the  American  Silk  Journal,  Textile  World 
Journal,  Textiles,  Textile  Recorder,  Dry  Goods  Economist,  Women's  Wear, 
Daily  News  Record,  New  York  Journal  of  Commerce;  also  Chittick, 
The  Silk  Industry,  U.  S.  Monthly  Summary  of  Cotton  and  Finance. 
Silk  Manufacturing  and  Its  Problems,  U.  S.  Monthly  Summary  of 
Cotton  and  Finance. 

2  A  particularly  good  description  of  the  organization  of  the  United 
Cigar  Stores  is  given  in  P.  T.  Cherington,  Advertising  as  a  Business 
Force,  pp.  172-182.  A  series  of  articles  on  chain  stores  that  appeared 
in  Printers'  Ink  are  given  in  condensed  form  in  P.  T.  Cherington, 
Advertising  Book— 1916,  pp.  229-286.  See  also  G.  A.  Nichols,  "United 
Retail  Stores  Invade  Many  Fields  of  Merchandising,"  Printers'  Ink, 
April  15,  1920,  pp.  153-172;  C.  P.  Russell,  "The  Winchester  Plan," 
Printers'  Ink,  March  18,  1920,  pp  77-84,  193-196;  J.  M.  Gries,  "Line 
Yards  (The  Chain  Store  in  the  Lumber  Trade)"  American  Lumberman, 
March  15,  1919,  pp.  50-51,  March  22,  1919,  p.  40,  March  29,  1919, 
p.  38. 


RETAIL  TRADE  59 

experience  in  wholesale  business,  is  contemplating  a 
substantial  investment  in  a  chain  store  enterprise.  He 
desires  information  on  the  following  points : — 

In  what  trades  are  chain  stores  operating? 

Why  is  this  type  of  organization  particularly  suited 
to  these  trades? 

Wherein  does  the  chain  store  system  have  advant- 
ages in  competition  with  other  types  of  retail  estab- 
lishments? 

What  are  its  limitations? 


36.    Peter  Brown — Chain  Stores 

June  21st,  1915. 
Bureau  of  Business  Research, 
Harvard  University, 
Cambridge,  Mass. 
Gentlemen: 

I  am  seriously  considering  the  chain  store  proposition. 
Our  firm  has  been  established  here  for  over  fifty  years  and 
we  have  always  had  the  reputation  for  good  quahty.  Our 
down-town  store  is  very  complete  and  up-to-date  in  every 
way.  The  first  of  the  year  I  had  to  take  hold  of  the  man- 
agement as  my  manager  was  not  looking  after  things.  I  had 
many  other  interests  and  paid  very  little  attention  to  the 
grocery  business.  Since  I  have  taken  hold  we  have  had 
much  more  efficiency  in  every  department.  You  may  be 
interested  in  knowing  our  monthly  expense  has  been  reduced 
15%  and  our  volume  increased  over  25%. 

In  getting  back  into  the  harness  I  have  again  begun  to 
get  interested  in  the  grocery  bu.'^iness.  I  find  after  very 
careful  consideration  the  down-town  store  is  losing  its  hold 
and  in  large  cities  it  will  never  be  the  factor  it  has  been. 
The  expense  of  conducting  a  complete  table  supply  house  is 
out  of  all  reason  in  comparison  with  the  margin  of  profit. 
With  our  reputation  and  well  known  name,  we  could  estal>- 
lish  one  or  two  hundred  stores,  and  I  am  sure  we  would 
make  a  wonderful  showing. 


60  MARKETING  PROBLEMS 

Very  few  men  have  given  the  study  to  the  grocery  busi- 
ness that  I  have,  and  I  think  I  am  conversant  with  every 
phase  of  it  from  office  to  delivery.  I  expect  to  increase  our 
capitaUzation  and  get  about  $50,000  new  capital.  I  am 
sure  this  is  all  we  ever  will  need  as  new  stores  will  take  care  of 
themselves. 

This  city  presents  an  exceptional  opportunity  as  the  chain 
now  established  handles  mostly  inferior  quality.  My  idea 
of  chain  stores  is  to  handle  good  quality  and  sell  nothing 
that  is  inferior.  Good  quality  does  not  necessarily  mean 
high  prices.  It  depends  on  the  buyer  entirely.  It  would  be 
very  simple  for  me  to  get  started,  as  I  have  the  down-town 
store  doing  an  annual  business  of  over  $500,000,  a  warehouse, 
and  a  very  efficient  system.  I  have  a  store  in  Indianapolis 
and  have  had  stores  in  other  cities,  but  have  not  had  a 
chain  in  this  city.  Before  trying  to  interest  new  capital 
I  am  very  anxious  to  get  data  from  others,  and  if  it  is  possible 
I  would  like  to  get  information  on  the  questions  attached 
hereto,  and  will  appreciate  receiving  any  information  you 
can  give  me. 

Assuring  you  that  any  information  that  you  can  give 
me  will  be  held  strictly  confidential,  and  thanking  you  for 
same,  I  am 

Yours  very  truly, 

(signed)     Peter  Brown 

How  much  capital  is  necessary  to  conduct  Main 
store  and  20  Branches,  main  store  doing  a  business  of 
$500,000  per  annum,  of  which  $300,000  is  fresh  meats, 
fruits  and  vegetables,  dairy  and  bakery?  A  stock  of 
$10,000  would  be  all  that  would  be  necessary  for  this 
Main  store,  if  warehouse  supplied  stock  daily. 

How  much  stock  is  it  necessary  to  carry  in  each 
store? 

How  much  stock  is  it  necessary  to  carry  in  ware- 
house? 

How  far  is  it  expedient  to  go  in  the  manufacturing 
line  in  bakery,  coffee  roasting,  etc.? 

Is  it  advisable  to  have  private  labels  or  use  manu- 
facturers' labels? 

What  per  cent  of  profit  should  the  warehouse  have 
from  each  store? 

Percentage  of  gross  profit  of  Branch  stores? 

Percentage  of  expense  of  Branch  stores? 

What  is  the  average  weekly  volume  of  business  of 
chain  stores? 


RETAIL  TRADE  61 

How  many  employees  to  each  store? 

Salary  paid  to  manager? 

If  bonus  is  paid,  is  it  paid  out  of  the  net  profits  or 
out  of  gross  receipts  over  a  given  amount? 

Average  rent  of  stores? 

Is  it  advisable  to  carry  meats?  Fresh  fruits  and 
vegetables? 

How  many  stores  should  an  inspector  have  super- 
vision of? 

What  salary  should  be  paid  him? 

How  often  should  inventory  be  taken? 

Should  merchandise  be  billed  at  retail  selling  price 
or  at  warehouse  price? 

Should  any  bulk  goods  be  sent  to  chain  stores  or 
should  everything  be  put  up  in  packages  before  delivery 
to  stores? 

How  much  should  be  spent  in  advertising,  and  what 
per  cent  should  each  store  bear? 

What  method  is  generally  used — newspaper,  cir- 
culars, or  other  methods? 

How  much  is  allowed  for  fixtures  and  equipment 
of  each  store? 

What  method  is  used  for  collecting  the  money  from 
stores? 

Has  it  proven  profitable  to  keep  stores  open  even- 
ings? 

Have  check-printing  Cash  Registers  been  used? 

Is  it  necessary  or  expedient  to  give  stamps  or 
premiums? 


37.     Kearsarge  Company — Chain  Stores 

Golden  &  Company,  a  firm  of  investment  bankers, 
were  requested  in  1919  to  purchase  5,000  shares  of  pre- 
ferred stock  to  be  issued  by  the  Kearsarge  Company, 
operating  a  chain  of  twenty-five  and  fifty  cent  stores.The 


62  MARKETING  PROBLEMS 

Kearsarge  Company  had  a  capitalization  of  $150,000 
common  stock  and  $150,000  preferred  stock.  The  new 
issue  of  stock  proposed  was  $500,000,  7%  cumulative, 
participating  preferred  stock.  Practically  all  the 
holders  of  the  previous  issue  of  preferred  stock  had 
agreed  to  convert  their  shares  into  the  new  issue.  The 
new  issue  of  preferred  stock  was  to  be  redeemable  as 
a  whole  or  in  part  at  110  on  thirty  days'  notice. 

The  Kearsarge  Company  had  no  bonded  debt,  and 
it  was  agreed  that  no  mortgage  might  be  placed  on  the 
property  without  the  consent  of  three-fourths  of  the 
outstanding  participating  preferred  stock,  except  that 
there  might  be  a  purchase  money  mortgage  on  property 
acquired.  It  was  further  provided  that  the  cumulative, 
participating  preferred  stock  should  receive  up  to  an 
additional  1%  dividend  whenever  net  earnings  for  one 
year  available  for  dividends  on  the  common  stock 
exceeded  $80,000.  There  was  to  be  a  sinking  fund, 
beginning  in  1921,  of  3%  per  annum  of  the  outstanding 
participating  preferred  stock.  It  was  stated  that  the 
annual  net  profits  of  the  company  had  averaged  for 
the  past  five  years  about  fifteen  times  the  dividends 
on  the  then  outstanding  preferred  stock  and  were  equal 
to  almost  3>2  times  the  7%  dividends  on  the  partici- 
pating preferred  stock  to  be  issued. 

The  sales  of  the  Kearsarge  Company  had  been 
approximately  as  follows:  1914,  $2,500,000;  1915, 
$3,000,000;  1916,  $3,600,000;  1917,  $4,500,000;  1918, 
$6,000,000.  The  balance  sheet  was  satisfactory.  The 
receipts  from  the  sale  of  this  new  stock  were  to  be 
used  for  reducing  current  liabilities  and  providing  funds 
for  the  expansion  of  the  business. 

It  was  stated  in  the  letter  to  the  bankers  that  the 
Kearsarge  Company  operated  a  chain  of  so-called 
department  stores  located  in  important  cities  through- 
out the  Eastern  half  of  the  United  States.  The  stores 
sold  merchandise  ranging  in  price  from  one  cent  to 
fifty  cents,  but  it  was  estimated  that  90%  of  the  busi- 
ness was  done  in  twenty-five  and  fifty  cent  goods. 
The  first  store  of  this  company  was  established  in  a 
manufacturing  city  in  New  England  in  1907. 


RETAIL  TRADE  63 

The  Kearsarge  Company  has  a  profit  sharing  plan 
with  the  managers  of  the  stores.  It  was  stated,  further- 
more, that  in  each  store  the  company  had  two  to  five 
young  men  in  practical  training  as  managers  of  future 
stores  which  the  company  planned  to  open.  The 
branches  of  this  company  were  located  in  different 
cities,  thus  tending  to  prevent  business  from  being 
adversely  affected  to  any  great  extent  by  fires,  strikes, 
or  other  local  conditions  that  do  not  affect  the  country 
as  a  whole.  The  company  sold  only  for  cash  and  did 
not  operate  a  delivery  system. 

\Aniat  additional  information  on  the  management 
of  these  stores  would  be  useful  to  the  investment 
bankers  in  deciding  whether  or  not  to  purchase  these 
securities  for  sale  to  their  customers? 


38.    National  Hardware  Stores,  Inc. 

The  following  statement  describes  the  plan  of 
organization  of  a  chain  of  retail  hardware  stores.  ^ 

The  National  Hardware  Stores,  Inc.,  has  been  incor- 
porated under  the  laws  of  the  State  of  New  York,  with  the 
usual  nominal  capitalization  at  the  start  of  similar  large 
enterprises,  shortly  to  be  increased  to  $1,000,000  of  preferred 
stock  and  (30,000  shares  of  common. 

The  corporation  is  formed  under  tlie  recent  "No  Par 
Stock"  act  which  is  intended  to  prevent  over-capitalization, 
and  is  the  first  hardware  enterprise  to  take  form  under 
that  act. 

The  new  corporation  proposes  to  operate  a  chain  of  retail 
hardware  stores.  As  a  nucleus  it  is  consolidating  a  group 
of  established  stores  located  in  selected  towns  in  the  Eastern 

'  This  statomont.  is  rrprinlcf]  from  the  Ilartlwnrr  Dmlrrs'  Magazine, 
June,  1917,  pp.  135-138,  by  permission  of  the  National  Hardware 
Stores,  Inc. 


64  MARKETING  PROBLEMS 

states,  and,  later  on,  expects  both  to  acquire  additional  estab- 
lished stores  and  to  open  new  ones  throughout  the  country. 

The  plans  of  the  organizers  are  very  complete  and  com- 
prehensive, and  are  devised  to  provide,  from  the  central 
office,  scientific  merchandising,  modern  sales  promotion  and 
detailed  accounting  for  the  stores  comprising  the  chain. 
These  plans  will  interest  the  hardware  trade,  and  are  here 
briefly  described. 

The  organizers  believe  there  are  large  profits  to  be  made 
in  the  merchandising  of  hardware,  by  closely  watching  the 
amount  of  capital  invested  in  various  stocks. 

The  plan  contemplates  the  operation  at  the  central 
office  of  a  perpetual  inventory  for  each  store,  secured  by 
means  of  merchandise  code  numbers  and  operated  by  an 
electrical  machine  called  the  Hollerith  Tabulating  Machine. 

The  merchandise  code  is  simply  a  stock  number  used  in 
place  of  the  manufacturer's  number,  except  that  it  goes 
further  and  covers  the  name  of  the  article,  description, 
quality  and  size.  It  completely  describes  the  article  with- 
out the  use  of  words,  and  is  marked  on  the  price-tags,  boxes 
and  samples. 

The  use  of  these  descriptive  numbers  permits  stock 
records  to  be  made  up  at  the  central  offices  on  the  tabulating 
machine  very  rapidly  and  at  low  cost.  This  machine  was 
originally  designed  for  use  in  the  Census  department  at 
Washington.  It  has  since  come  to  be  used  in  the  big  rail- 
roads, life  insurance  companies  and  great  manufacturing 
plants  of  the  country.  One  of  the  large  retail  mercantile 
businesses  of  New  York  has  for  the  past  five  years  kept  its 
stock  records  by  a  numeric  code  system  which  was  devised 
by  one  of  the  organizers  of  the  National  Hardware  Stores,Inc. 

The  Hollerith  Tabulating  System,  as  this  electrical  ma- 
chinery is  called,  consists  of  three  parts:  a  key  punch,  a 
sorter  and  a  tabulator. 

The  detail  of  a  transaction,  such  as  a  sale  of  merchan- 
dise, is  punched  on  a  specially  designed  card,  which  shows 
the  salesman's  number,  the  code  number  of  the  goods,  the 
quantity  and  the  selling  price,  the  data  being  taken  from 
the  sales  ticket  made  by  the  clerk,  who  sells  the  goods  and 
copies  off  the  marking  on  the  goods  or  box.  The  punching 
is  done  in  the  central  office,  and  is  very  rapid,  operators 
frequently  doing  four  hundred  cards  an  hour. 

These  cards  thus  punched  are  sorted  electrically  by 
salesmen's  numbers  and  the  amount  of  sales  for  each  clerk 
then  tabluated.  They  are  then  re-sorted  by  merchandise 
codes  and  filed  by  stores  and  stock  numbers  in  open  file 
boxes  where  they  are  quickly  available  for  making  up  stock 
records  showing  sales  and  stock  on  hand  in  each  store. 

The  sorting  machine  sorts  the  punched  cards  at  the  rate 


RETAIL  TRADE  65 

of  one  hundred  and  seventy-five  per  minute,  and  the  adding 
of  the  amounts  on  the  cards  by  the  tabulator  is  done  at  the 
rate  of  one  hundred  and  twenty-five  per  minute. 

The  great  speed  at  which  this  work  is  done  makes  the 
cost  of  producing  the  records  of  sales  and  stock  on  hand 
very  small,  and  the  records  are  available  within  twenty-four 
hours  after  the  sale. 

The  use  of  a  merchandise  code  also  permits  of  the  stand- 
ardization of  merchandise  in  many  stores.  A  careful  study 
will  be  made  of  all  kinds  of  articles  capable  of  sale  in  a 
properly  run  hardware  store,  and  the  buyer  will  then  "pick" 
the  item  that  is  best  for  the  customer  and  most  profitable 
for  the  store. 

The  merchandise  so  selected  will  be  offered  to  the  public 
under  a  novel  device  described  as  a  Super-Trade-Mark 
"The  Pick  of  the  Market,"  the  design  of  which  has  been  filed 
in  the  United  States  patent  office  and  application  made  for 
its  registry. 

It  is  the  policy  of  the  company  to  deal  in  standard  brand 
goods  in  preference  to  private  brands  of  its  own,  merely 
affixing  its  Super-Trade-Mark,  thus  indorsing  the  article 
as  "The  Pick  of  the  Market."  It  is  the  intention  of  the 
managers  of  this  business  to  make  the 
Super-Trade-Mark  a  mark  of  service, 
rather  than  a  brand  of  merchandise, 
which  symbolizes  the  service  not  only 
to  the  consumer  but  also  to  the  manu- 
facturer. 

The  standardization  of  merchan- 
dise under  this  Super-Trade-]Mark 
(which  also  carries  the  merchandise 
code  and  selling  price),  makes  it  pos- 
sible for  the  central  office  to  give  effec- 
tive co-operation  and  assistance  to  the 
managers  of  the  stores  in  selecting  the 
best  merchandise  bought  at  the  lowest 
price,  and  also  to  maintain  properly  balanced  stocks  without 
loading  detail  work  on  the  men  in  the  stores.  The  store 
managers  will,  of  course,  buy  such  goods  as  are  peculiar  to 
their  local  requirements. 

The  clerks  and  managers  will  be  free  to  concentrate  on 
the  all-important  work  of  selling  goods. 

Provision  is  also  made  in  the  plans  of  the  new  business 
for  a  simple  yet  complete  accounting  system,  which  will  be 
produced  at  the  central  office  for  each  store  as  a  distinct  and 
separate  unit.  There  will  thus  be  available  for  each  store 
manager  each  month,  an  operative  statement  and  balance 
sheet  showing  the  transactions  for  the  month,  and  also  for 
the  year  to  date'.  This  monthly  report  will  be  made  up  at 
the  eentral  office  without  imposing  on  the  stores  anything 


66  MARKETING  PROBLEMS 

other  than  the  making  of  sales  tickets,  etc.,  for  each 
transaction;  no  special  reports  being  required. 

This  store  report  will  show  the  sales  of  each  salesman. 
A  bonus  system  will  be  operated  and  each  clerk  will  receive 
an  adequate  and  liberal  compensation  in  proportion  to  his 
ability  and  effi(;iency. 

The  aim  of  the  management  is  to  have  all  work  done  in 
the  central  office  that  can  possibly  be  done  there,  so  that 
the  store  men  may  sell  goods,  and  to  assist  them  in  the  work 
modern  sales  promotion  helps  will  be  provided. 

Modern  sales  promotion  means,  first,  arousing  the  inter- 
est of  a  large  number  of  possible  customers  by  direct  adver- 
tising to  their  homes;  second,  supplementing  this  interest  by 
advertising  in  newspapers  and  other  local  mediums;  third, 
attracting  the  customer  thus  interested  into  the  store  by 
effective  window  display  of  the  goods  advertised ;  and  fourth, 
instructing  the  store  salesmen  what  to  say  and  how  to  say 
it,  when  the  customer  is  in  the  store,  and  finally  and  most 
important  paying  the  salesman  a  special  compensation  or 
bonus  for  special  efficiency,  success  and  effort. 

A  sales  promotion  department  will  be  organized  at  the 
central  office  which  will  furnish  a  regular  service  of  direct 
advertising  to  selected  lists  of  customers  made  up  by  the 
stores,  also  newspaper  and  street  car  advertising,  gotten  up 
by  experts,  show  windows  designed  in  standard  form,  by 
specialists,  for  easy  arrangement  in  store  windows,  and  most 
important  of  all,  a  system  of  training  salesmen,  which  will 
assist  them  to  sell  intelligently  the  goods  carried  by  the 
stores. 

The  basis  of  training  salesmen  is  to  secure  from  the 
manufacturer  with  whom  an  order  is  placed  a  full  statement 
of  the  selling  points  of  the  goods  bought,  which  is  passed 
on  as  "selling  talk"  to  the  store  clerks,  at  the  time  the  good^ 
are  put  on  sale. 

It  is  believed  by  the  organizers  that  the  sales  promotion 
work  of  this  organization  will  appeal  especially  to  the  manu- 
facturer who  is  interested  in  placing  his  product  in  the  hands 
of  the  consumer,  and  that  the  plans  of  the  National  Hard- 
ware Stores  made  to  this  end  will  receive  ready  cooperation 
from  the  manufacturers. 

Emphasis  is  laid  by  the  management  of  the  company  on 
the  fact  that  no  price  cutting  policy  will  be  countenanced. 

Very  complete  detailed  preparation  has  been  made  for 
giving  effect  to  the  administration  of  the  business  in  harmony 
with  these  policies,  the  work  having  been  in  course  of 
development  for  the  past  two  years. 

During  this  time  thorough  study  has  been  made  of  many 
towns  and  cities  within  a  twelve  hour  radius  of  New  York 


RETAIL  TRADE  67 

City,  covering  not  only  the  local  conditions  of  the  town  and 
back  country,  but  especially  that  of  the  hardware  trade  there. 
Town  reports  in  standardized  form  have  been  secured 
on  over  one  hundred  towns,  covering  the  essential  facts 
under  the  following  heads,  viz. : 

1.  Population  and  avenues  of  transportation. 

2.  Ratesanddistancesoftransportationand commutation. 

3.  Municipal  improvements. 

4.  Civic  development. 

5.  Retail  conditions. 

6.  Industrial  conditions. 

7.  Back  country. 

8.  Hardware  conditions. 

9.  Especial  features  and  photographs. 

From  a  study  of  these  town  reports  a  selection  of  those 
best  suited  for  business  development  is  made,  and  negotiations 
opened  for  a  hardware  store  there. 

The  purpose  of  this  very  exhaustive  investigation  is 
"To  assure  to  the  organization  at  this  time  a  group  of  suc- 
cessful estabUshed  hardware  stores,  the  owners  of  which 
realize  the  possibilities  of  hardware  chain  stores,  desire  to 
participate  in  the  large  profits  to  be  made  and  are  willing  to 
cooperate  with  each  other  and  the  officers  of  the  company 
to  this  end.  A  sufficient  number  of  hardware  dealers  have 
agreed  to  join  the  company  to  assure  its  success.  It  is  the 
policy  of  the  corporation  to  buy  men  into  its  organization 
rather  than  to  buy  out  their  businesses." 

The  board  of  directors  will  contain  a  number  of  names 
well  known  to  the  trade. 

The  organizers  of  the  National  Hardware  Stores,  Inc., 
are  W.  A.  McFadden  and  John  M.  Gaines.  The  former  was 
for  five  years  with  a  large  Western  jobbing  house,  and  for 
the  past  eight  years  has  been  engaged  in  organizing  and  mer- 
chandising efficiency  work  in  New  York  City  for  a  number 
of  large  business  houses. 

Mr.  Gaines  was  for  many  years  an  officer  and  director 
of  the  Remington  Arms — U.  M.  C.  Co.,  and  is  well  known  to 
the  hardware  trade. 

There  will  be  associated  with  the  organizers  in  the  admin- 
istration of  the  corporation,  as  officers,  directors  and  man- 
agers, a  number  of  men  selected  with  special  reference  to 
their  ability  to  contribute  to  the  practical  management  of 
the  hardware  business,  and  the  financial  standing  of  the 
corporation. 

Discuss  this  plan  from  the  standpoint  of  Mr.  William 
Reed,  the  proprietor  of  a  retail  hardware  store  in  a 
town  of  12,000  population  in  eastern  New  York. 
If  he  so  desires,  Mr.  Reed  may  have  an  opportunity  to 


68  MARKETING  PROBLEMS 

join  this  organization.  The  annual  sales  in  his  store  are 
about  $69,000  a  year;  his  total  expense  is  19.8%  of 
net  sales,  and  his  annual  rate  of  stock-turn  1.9  times. 
The  store  has  been  in  operation  for  a  period  of  years 
and  has  a  reputable  standing  in  the  community. 


39.     Chicago  Great  Western  Railroad — Retail 

Stores 

The  following  newspaper  dispatch  from  Kansas 
City,  Missouri,  was  published  March  1st,  1915: 

The  Chicago  Great  Western  Railroad  is  going  to  open 
general  stores  in  all  its  small  stations,  if  an  experiment  to 
be  tried  out  at  these  stations  in  Missouri  is  successful. 

A  full  stock  of  merchandise  has  been  ordered  for  stores 
at  Woodruff,  West  Platte  and  New  Market,  Mo.,  in  the 
Bee  Creek  Valley.  If  the  plan  proves  a  success,  it  will  be 
followed  at  other  towns. 

The  object  is  to  increase  the  business  of  the  railroad  in 
towns  where  at  present  there  is  perhaps  only  one  general 
store,  or  none  at  all,  and  to  provide  better  occupation  for 
the  station  agents,  who  now  have  little  to  do.  It  will  also 
increase  their  income,  and  make  their  services  of  more  value 
to  the  road. 

A  full  stock  of  merchandise,  such  as  is  handled  by  the 
usual  general  store  in  small  towns,  will  be  kept,  and  with 
the  backing  of  the  railroad  the  stores  will  offer  a  lively 
competition  for  the  big  mail-order  houses. 

The  system  of  using  railroad  stations  for  general  stores 
has  been  demonstrated  a  success  by  the  Kansas  City-St. 
Joseph  Interurban  Line,  which  has  been  operating  stores  at 
several  stations.  Only  those  towns  which  have  limited 
store  facilities  will  be  included.  The  new  plan  will  be 
inaugurated  as  soon  as  the  stocks  can  be  installed. 

What  are  the  chief  apparent  obstacles  to  the 
successful  operation  of  such  a  plan?  In  how  far  can 
the  obstacles  probably  be  overcome? 


RETAIL  TRADE  69 

40.     Ferry  Soap  Company — Chain  Store  Outlet 

The  Ferry  Soap  Company,  manufacturing  toilet 
soap  sold  under  the  Ferry  brand,  is  planning  for  an 
expansion  of  its  sales.  The  company's  product  here- 
tofore has  been  sold  chiefly  through  unit  stores.  The 
company  is  considering  the  opportunity  of  selling  to 
chain  stores.  One  of  the  questions  for  decision  is 
whether  to  solicit  business  from  chains  of  five  and  ten 
cent  stores  or  chains  of  drug  stores,  or  both. 

In  how  far  will  this  company  find  that  the  same 
factors  are  involved  in  selling  to  chains  of  five  and 
ten  cent  stores  as  in  selling  to  chains  of  drug  stores? 


41.     Potomac  Mills — Five  and  Ten  Cent  Store 
Contract 

The  Potomac  Mills,  located  in  Pennsylvania,  have 
had  annual  sales  ranging  from  $400,000  to  $600,000. 
Two-thirds  of  the  sales  of  the  company  have  been 
mercerized  crochet  cotton  and  the  remainder  fancy 
darning  cottons  of  four  different  types.  The  company 
has  distributed  its  entire  product  through  the  regular 
trade,  selling  to  one  wholesaler  in  Boston,  one  in  New 
York,  and  one  in  Chicago.  The  company  has  been 
able  to  count  in  normal  years  on  a  net  profit  of  2% 
on  all  its  products. 

The  Potomac  Mills  have  received  from  a  chain 
store  company  an  offer  to  buy  on  a  one-year  contract, 
subject  to  renewal,  $000,000  worth  of  mercerized 
crochet  cotton  at  a  price  which  represents  a  net  profit 
of  1/4%  with  the  present  basis  of  costs  unchanged. 
The  retail  company  operates  a  chain  of  five  and  ten 
cent  stores  located  in  many  of  the  cities  and  towns  in 


70  MARKETING  PROBLEMS 

the  United  States,  having  a  population  of  over  25,000 
and  some  stores  in  smaller  towns. 

What  must  the  Potomac  Mills  take  into  considera- 
tion in  reaching  a  decision  on  this  offer? 


42.      Sweets    Company    of   America,    Inc. — Sales 
Contracts 

The  following  news  dispatch  was  pubhshed  in  the 
Boston  Transcript,  November  1st,  1919: — 

Four  contracts  with  large  companies  for  the  distribution 
of  the  products  of  the  Sweets  Company  of  America,  Inc., 
have  just  been  signed  by  Samuel  F.  Williams,  president  of 
that  corporation.  They  are  with  the  Atlantic  &  Pacific 
Tea  Company,  with  4,500  stores  throughout  the  country, 
the  American  Stores  Company,  with  a  chain  of  1,200  stores, 
with  Louis  K.  Liggett,  for  distribution  of  the  product  through 
the  Liggett  stores,  and  with  Ward  &  Gow,  for  distribution 
of  the  Sweets  Company's  product  in  the  elevated  and  sub- 
way stations  in  New  York.  These  contracts,  according  to 
Mr.  Williams,  will  assure  immediate  distribution  for  every 
pound  of  its  product  the  Sweets  Company  is  able  to  turn  out. 

Discuss  the  sales  policy  from  the  standpoint  of  the 
manufacturing  company. 


RETAIL  TRADE  71 

43.     United  Drug  Company  Plan 

The  United  Drug  Company  was  incorporated  in 
1902,  for  the  manufacture  and  sale  of  products  sold 
in  retail  drug  stores.  The  plan  on  which  the  company 
was  organized  provided  for  the  ownership  of  the  com- 
mon stock  by  retail  merchants.  Each  retailer  who  was 
a  stockholder  thereby  became  an  exclusive  agent  in 
his  district  for  the  Rexall  goods  manufactured  by  the 
United  Drug  Company.  The  goods  made  by  the 
company  were  to  be  sold  under  the  Rexall  trade-mark. 

Apparently  one  of  the  objects  of  the  organization 
of  this  company  was  to  meet  the  ''price-cutting  evil" 
in  the  drug  trade  as  well  as  to  provide  an  outlet  for 
the  products  of  the  new  manufacturing  company.  For 
a  period  of  fifteen  years  prior  to  the  organization  of  the 
United  Drug  Company,  price  cutting,  especially  on 
proprietary  articles,  had  been  prevalent  in  the  retail 
drug  trade. 

According  to  the  published  financial  reports  of  the 
company,  its  authorized  capitalization  in  1919  was  as 
follows : 

S12,500,000  7%  cumulative  first  preferred  stock. 

$10,000,000  6%  non-cumulative  second  preferred 
stock. 

S35,000,000  common  stock. 

Of  this  authorized  capitalization  $40,000,000  was 
outstanding  in  1919. 

It  was  stated  that  in  1919  the  company  controlled 
the  following  subsidiaries:  the  Louis  K.  Liggett  Com- 
pany, operating  a  chain  of  186  retail  drug  stores  in  the 
United  States;  the  United  Drug  Company,  Limited, 
of  Canada;  United  Drug  Company  of  Great  Britain; 
Cooperative  Realty  Company ;  Seamless  Rubber  Com- 
pany; Schuhle'sPureGrape  Juice  Company;  National 
Cigar  Stands  Company;  Guth  Chocolate  Company. 

The  merchandise  sales  for  the  year  ending  June 
30,  1903,  were  $61,776;  1907,  $1,014,000;  1918, 
$51,028,000. 

In  1919,  about  5,500  retail  druggists  were  reported 
to  be  stockholders  and  exclusive  agents  for  the 
Rexall  products. 


72  MARKETING  PROBLEMS 

The  United  Drug  Company  manufactures  pro- 
prietary medicines,  perfumes,  pharmaceuticals,  toilet 
articles,  rubber  goods,  and  numerous  other  articles 
sold  in  retail  drug  stores. 

Soon  after  its  organization  the  United  Drug  Com- 
pany began  to  open  retail  stores  to  be  operated  as 
retail  branches  and  known  as  the  Liggett  stores. 
These  stores  were  located  in  the  larger  cities.  Pre- 
sumably one  of  the  objects  in  opening  these  stores  was 
to  enable  the  company  to  meet  the  competition  of 
other  chains  of  drug  stores.  In  1915  the  United  Drug 
Company  acquired  control  of  the  Riker-Hegeman  chain 
operating  about  ninety  drug  stores  in  the  large  cities 
in  the  East.  This  chain  was  merged  with  the  chain  of 
retail  branches  operated  by  the  United  Drug  Company. 

Does  the  plan  on  which  the  United  Drug  Company 
is  organized  and  operated  appear  to  be  applicable  to 
the  grocery  business? 


44.     SuDBUEY   Company — Manufacturers*   Retail 
Branches 

The  general  manager  of  the  Sudbury  Company, 
manufacturing  an  article  now  sold  through  unit  stores, 
is  considering  the  advisability  of  establishing  a  chain 
of  retail  branches.  He  desires  information  on  the 
following  points! : — 

In  what  trades  are  manufacturers'  retail  branch 
stores  in  operation? 

What  are  the  general  characteristics  of  the  mer- 
chandise sold  in  these  stores? 

'  John  Allen  Murphy,  "L.  E.  Waterman  Company's  'Laboratory' 
Retail  Stores,"  Printers'  Ink,  September  7,  1916,  pp.  3-8.  "Methods 
and  PoUcies  of  the  New  England  Shoe  Manufacturers,"  Printeis' 
Ink,  April  2,  1914,  pp.  3-13,  136-138. 


RETAIL  TRADE  73 

What  have  been  the  objects  of  manufacturers  in 
estabhshing  these  retail  branches? 

Have  these  objects  generally  been  attained? 


45.     Lexington   Shoe  Company — Manufacturers* 
Retail  Branches 

The  Lexington  Shoe  Company  produces  women's 
shoes  of  good  quahty  to  be  sold  at  a  medium  price. 
The  company  has  a  large  output.  About  one-half  of 
the  shoes  that  it  produces  bear  the  manufacturer's 
brand  name  which  is  well  advertised.  The  remainder 
is  sold  unbranded  to  wholesalers  and  retailers.  For 
the  sale  of  its  branded  product  the  company  heretofore 
has  graaited  exclusive  agencies  to  department  stores  in 
the  larger  cities  in  the  United  States.  This  company 
is  contemplating  the  establishment  of  a  chain  of  several 
hundred  branches  through  which  eventually  it  is  hoped 
to  market  its  entire  output. 

What  are  the  obstacles  to  be  overcome  in  effecting 
this  change  in  policy? 


46.     Meeting  Mail  Order  Competition 

The  following  statement  is  quoted  from  a  card 
sent  out  by  Smith,  Brown  &  Company,  a  mail  order 
house,  in  December,  1915: 


74  MARKETING  PROBLEMS 

Stop  Paying  Needless  Profits 
Keep  This  Money  at  Home — Right  in  Your  Own  Pocket. 

When  you  buy  farm  implements  in  the  ordinary  retail 
way  you  usually  pay  a  profit  of  20  to  40  per  cent  over  the 
price  at  which  the  goods  are  sold  by  the  manufacturer  to 
the  jobber  or  dealer.  This  profit  is  the  only  part  of  the  pur- 
chase price  that  really  "stays  at  home,"  the  balance  goes 
back  to  the  manufacturer,  who  may  be  located  a  thousand 
or  more  miles  away.  When  you  buy  our  implements,  gaso- 
line engines,  cream  separators,  buggies,  or  other  goods  made 
in  our  own  factories  and  sold  direct  from  the  factory  to  you, 
you  save  middlemen's  profits,  for  only  the  manufacturer's 
profit  is  added  to  the  actual  cost  of  the  goods.  The  money 
you  save  not  only  "stays  at  home"  but  you  can  keep  it 
right  in  your  own  pocket.  Surely  this  is  closer  to  the  prin- 
ciple of  keeping  money  at  home  than  any  other  method  of 
buying. 

Almost  every  kind  of  machinery  or  supplies  that  you 
use  on  your  farm  is  being  made  in  our  factories  and  sold 
direct  to  the  user  on  a  one-profit  basis.  If  you  are  bu^ang 
in  the  old-fashioned  way  you  are  paying  needless  profits — 
profits  simply  contributed  to  middlemen,  because  they  can- 
not bring  a  penny's  worth  of  value  or  service  which  you 
cannot  obtain  from  us — profits  which  you  might  as  well 
keep  at  home,  right  in  your  own  pocket.  Be  your  own 
dealer.  Buy  direct  from  the  makers.  Your  saving  will 
make  a  substantial  addition  to  your  farm  profits.  Write 
your  name  and  address  on  this  card  and  mail  to  us  today 
and  a  copy  of  this  catalog  will  be  sent  you  free. 

Our  Free  Special  Catalog  of  Farm  Implements  contains 
an  assortment  of  high  grade  farm  tools  and  many  other  lines 
of  interest  to  every  farmer,  products  of  our  own  factories, 
that  cannot  be  excelled  for  high  quahty  or  low  prices  in  any 
market.  Don't  buy  elsewhere  until  you  have  our  prices. 
Indicate  on  this  card  the  lines  you  are  interested  in,  and  you 
will  receive  our  Special  Catalog  and  complete  information 
by  return  mail. 

Walking  Plows  Planters  Cream  Separators 

Riding  Plows  Cultivators  Buggies 

Harrows  Mowers  Harness 

Disc  Harrows  Gasoline  Engines 

We  particularly  urge  you  to  consider  your  farm  imple- 
ment needs  now.  Fill  out  and  return  this  card  promptly. 
We  have  a  Special  Offer  for  Early  Buyers  which  will  make 
it  to  your  advantage  to  let  us  have  your  order  now.  Mail 
this  card  today. 

How  can  James  Wilson,  an  implement  retailer  with 
a  typical  store  located  in  a  town  of  5,000  population 


RETAIL  TRADE  75 

in  a  rich  farming  district  in  Kansas,  meet  this  com- 
petitioni? 


47.    Wellfleet  Company — Mail  Order 
Department 

The  Wellfleet  Company,  a  large  department  store 
in  New  York  City,  has  been  filling  incidental  mail 
orders  from  customers  for  some  years.  The  conditions 
are  now  such  that  if  it  is  to  continue  to  handle  any 
substantial  volume  of  mail  order  business,  a  new  policy 
must  be  adopted.  One  plan  that  is  being  considered 
is  to  issue  a  large  catalogue  twice  a  year,  as  is  done 
by  companies  that  conduct  a  mail  order  trade  exclu- 
sively. An  alternative  plan  is  to  issue  about  twice  a 
month  an  eight  or  ten  page  circular  of  special  sales  in 
the  various  departments  of  the  store^. 

What  is  to  be  said  for  and  against  each  plan? 


48.    Erie  Company — Selling  by  Mail 
The  Erie  Company  manufactures  a  toilet  article. 
Its  plant  is  located  in  Cleveland,  Ohio.     It  is  seeking 

» Theodore  H.  Price,  "The  Mail  Order  Business,"  The  Outlook, 
January  26,  1916.  T.  VV.  McAlUster,  "The  Retail  Merchant,"  The 
Outlook,  March  8,  1916. 

2  See  "Department  Stores  as  Manufacturers'  Competitors  in  Mail 
Order  Activities,"  Printers'  Ink,  March  30,  1916,  pp.  61-68. 


76  MARKETING  PROBLEMS 

information  on  the  opportunities  for  selling  its  product 
by  maili.  The  article  will  retail  for  about  sixty  cents, 
and  there  is  already  quite  a  demand  for  it,  but  the 
Erie  Company  is  in  doubt  as  to  whether  or  not  a  single 
article  can  probably  be  sold  at  this  price  by  mail. 

What  are  the  chances  for  success  in  undertaking  to 
sell  such  an  article  by  mail? 


49.     Selling  Farm  Produce  by  Mail 

A  marketing  division  of  the  Post  Office  Depart- 
ment has  been  proposed.  Its  purpose  would  be  "to 
promote  direct  trading"  between  producers  and  con- 
sumers of  farm  produce,  by  means  of  the  mails. 
The  following  argument  has  been  advanced  in  its 
favor : — 

At  this  time  about  90  per  cent  of  the  world's  wholesale 
trade  is  done  through  exhibition  of  samples,  which  the  buyer 
bears  in  his  mind.  Then  come  the  orders  by  lot  numbers 
and  orders  by  telegraph  and  "open"  orders — all  with  no 
higgling  or  haggling,  and  never  in  the  world  was  wholesale 
business  better  performed.  And  in  the  retailing  of  small 
purchases,  especially  of  food  products,  how  many  housewives 
nowadays  go  to  the  market  with  market  baskets  on  their 
arms  and  pick  out  their  own  meats  and  vegetables? 

So  we  see  that  the  time  is  here  for  "ordering,"  but  the 
true  way  to  order,  the  most  economic  way  to  order,  is  from 
"first  hands,"  and  this  applies  especially  to  food  products. 
In  the  distribution  of  food  products,  if  the  efficient  mode  of 
selling  and  buying  be  in  operation,  it  gives  the  equities  both 
to  producer  and  to  consumer.  It  does  more;  it  frees  the 
farmer  from  the  vexatious  and  pernicious  laws  of  chance, 
hence  from  injustice.  With  chance  and  injustice  eliminated 
from  exhange,  with  the  rule  of  efficiency  and  equity  in  its 
place,  it  will  not  alone  make  the  farmer  economically  stronger, 
but  it  will  do  more;  it  will  make  this  nation  stronger  and 

'  See  Printers'  Ink,  December  4,  1919,  p.  25. 


RETAIL  TRADE  77 

mightier  than  mere  fighting  ships  or  soldiers  can  make  it, 
although  these,  too,  should  be  had  when  wanted. 

(a)  Is  the  argument  here  advanced  in  favor  of  the 
plan  valid? 

(b)  Which  of  the  following  methods  of  operatmg 
such  a  division  by  the  Post  Office  Department  would 
be  most  favorable  to  the  success  of  the  project? 

(1)  The  assistance  to  be  in  the  form  of  a  brokerage 
service  without  charge. 

(2)  The  assistance  to  be  in  the  form  of  brokerage 
at  1%  of  the  value  of  the  products. 

(3)  The  assistance  to  be  in  the  form  of  outright 
purchase  and  sale  in  the  form  of  a  federal  mail 
order  establishment. 


50.  Cooperative  Stores 
In  England  the  development  of  consumers'  co- 
operative stores  has  been  conspicuously  successful 
during  the  last  half  century.  In  England  and  Scotland 
in  January,  1915,  there  were  3,825  retail  cooperative 
stores  with  3,736,589  members^. 

Most  of  these  stores  in  England  are  organized  on 
the  Rochdale  plan.  The  essential  characteristics  of 
the  Rochdale  plan  are  that  the  ownership  of  the  store 
is  vested  entirely  in  consumers;  that  capital  is  pro- 
vided by  the  members,  each  of  whom  subscribes  for 
one  or  more  shares;  that  the  par  value  of  each  share 
is  small,  seldom  over  S5.00.  Ordinarily  there  is  a 
limit  to  the  number  of  shares  that  any  one  member 
may  hold.    Each  member  has  one  vote  in  the  manage- 

J  Cooperative  Wholesale  Societies,  Limited,  Annual  Report  1918, 
p.  297. 


78  MARKETING  PROBLEMS 

ment  of  the  store  irrespective  of  the  number  of  shares 
that  he  holds.  Dividends  usually  are  paid  on  the 
shares  at  the  rate  of  5  or  6%.  The  net  profits  over 
and  above  the  dividends  on  the  shares  and  the  amount 
that  is  set  aside  for  reserves  and  surplus  are  dis- 
tributed to  the  members  in  proportion  to  their  pur- 
chases. In  some  societies  non-members  are  granted  a 
dividend  on  purchases  at  not  over  one-half  the  rate 
paid  to  members. 

Many  of  these  cooperative  societies  are  members 
of  the  wholesale  cooperative  societies.  The  English 
Cooperative  Wholesale  Society,  established  in  1864, 
had  a  membership  in  1918  of  1,200  societies^  The 
Scottish  Cooperative  Wholesale  Society  in  1918  had 
a  membership  of  261  societies.  The  combined  sales 
at  wholesale  of  these  two  societies  in  1918  amounted 
to  $411,600,000.  Groceries  and  provisions  make  up 
the  largest  item  in  their  business. 

The  wholesale  societies  are  organized  on  the  same 
principle  as  the  retail  cooperative  societies.  In  addi- 
tion to  performing  the  regular  wholesale  functions, 
these  wholesale  societies  have  also  greatly  extended 
their  activities.  The  English  Cooperative  Wholesale 
Society,  for  instance,  operates  several  factories  for 
manufacturing  shoes,  crackers,  candy,  underwear, 
ready-to-wear  clothing,  furniture,  wire  mattresses, 
brushes,  drugs,  cotton  cloth,  and  flour.  The  society 
owns  farms  in  England  for  the  supply  of  fruit  for  the 
manufacture  of  jams  and  preserves  and  tomatoes  for 
canning.  It  operates  hot  houses  and  dairy  farms.  It 
owns  tea  plantations  in  Ceylon  and  operates  a  fleet 
of  steamers.  Since  1914  the  English  cooperative 
societies,  both  retail  and  wholesale,  have  been  con- 
spicuously prosperous^.  In  the  countries  of  continental 
Europe,  the  consumers'  cooperative  movement  also 
has  developed  on  a  large  scale. 

In  the  United  States,  it  was  estimated  a  few  years 
ago  that  there  were  in  the  neighborhood  of   1,000 

1  U.  S.  Bureau  of  Labor  Statistics,  Monthly  Labor  Review,  April, 
1920,  p.  132. 

2  For  an  up-to-date  history  of  the  cooperative  movement,  see 
Albert  Sonnichseu,  Consumers'  Cooperation. 


RETAIL  TRADE  79 

cooperative  stores*.  A  majority  of  these  stores  have 
farmers  as  members.  In  1918  there  probably  were  not 
more  than  250  cooperatives  of  industrial  workers  in 
the  United  States^.  A  large  number  of  cooperative 
stores  have  been  started  at  various  times  in  the  United 
States,  only  a  few  of  which  have  survived  for  a  long 
period. 

Why  have  not  cooperative  stores  developed  more 
successfully  in  the  United  States? 


51.    Cooperative  Stores 

New  York  City, 
December  11,  1916. 
Bureau  of  Business  Research, 
Harvard  University, 
Cambridge,  Mass. 
Dear  Sirs : 

I  am  interested  in  a  club  which  conducts  a  cooperative 
grocery  store,  and  whose  directors  have  ambitions  to  expand. 
In  attempting  to  cut  prices  on  watches  they  found  that  this 
could  not  be  done  without  being  refused  the  right  to  handle 
them.  This  brought  them  to  the  idea  that  they  ought  to 
adopt  the  Rochdale  plan  of  selling  at  current  prices  and  giv- 
ing dividends.  The  grocery  has  been  conducted  for  years 
with  success  by  selling  goods  at  less  than  the  regular  retail 
market  rate,  the  club  charging,  however,  a  commission  of 

1  These  statements  regarding  the  status  of  cooperative  stores  in 
the  United  States  are  based  chiefly  upon  Bulletin  304  of  the  United 
States  Department  of  Agriculture,  A  Surveij  of  Typical  Cooperative 
Stores  in  the  United  States,  by  J.  A.  Bexell,  Hector  KlacPherson  and 
W.  H.  Kerr,  published  November  3,  1916.  An  ardent  endorsement  of 
the  cooperative  store  movement  is  given  in  Emerson  P.  Harris', 
Cooperation,  tfie  Hope  of  the  Consumer.  See  also  Florence  E.  Parker. 
"Consumers'  Cooperative  Wholesale  Societies  in  the  United  States,' 
U.  S.  Bureau  of  Labor  Statistics,  Monthly  Labor  Review,  April,  1920, 
pp.  117-128. 

2  During  1919-20,  a  substantial  number  of  cooperative  stores  were 
started  under  the  guidance  of  union  labor  men.  For  example,  see 
Printers'  Ink,  March  11,  1920,  p.  84. 


80  MARKETING  PROBLEMS 

3%.  Some  of  us  would  like  to  continue  this  method  of 
selling,  as  our  wives  would  like  to  know  whether  they  are 
getting  things  cheaper  than  at  public  stores  or  not,  and  like 
to  know  for  a  certainty  whether  they  are  going  to  make  both 
ends  meet  at  the  end  of  the  month,  without  having  to  gamble 
on  what  the  dividend  is  going  to  be.  At  the  same  time,  others 
point  out  that  practically  all  successful  cooperative  societies 
operate  on  the  Rochdale  plan.  I  should  be  greatly  obliged 
for  any  information  which  will  help  us  to  decide  wisely  in 
regard  to  changing  from  the  present  to  the  Rochdale  plan. 
Yours  very  truly, 

(signed)     James  Brown 

What  reply  should  be  made  to  this  letter? 


52.     Charles  Armstrong — Sales  Plan 

The  following  inquiry  was  received  from  Mr. 
Charles  Armstrong,  in  1919: — 

I  am  taking  the  liberty  of  asking  you  a  question  or  two. 
In  your  study  of  the  merchandising  methods  of  food  busi- 
ness generally,  have  you  run  across  any  cases  of  cooperative 
stores  and  also  any  cases  of  stores  operated  by  individuals 
purporting  to  be  selling  merchandise  at  cost  prices  (plus 
carriage)  where  the  privilege  is  accorded  the  customer  of 
buying  from  this  particular  store  or  warehouse  in  considera- 
tion of  a  sale  of  a  certain  certificate  for  say  a  yearly  period 
amounting  to  a  definite  fixed  sum,  say  $25.00  or  $30.00  a 
year  or  whatever  it  may  be.  In  other  words,  the  idea  as 
represented  by  the  latter  named  method  is  one  of  selling 
a  definite  number  of  certificates  for  a  definite  sum  in  order 
to  get  together  the  working  capital  upon  which  to  do  busi- 
ness and  considering  the  income  received  from  the  sales  of 
certificates  and  the  discount  of  merchandise  as  the  only 
income  and  the  actual  expenses  of  doing  business  as  a  deduc- 


RETAIL  TRADE  81 

tion   from   same.     Of  course,    the   second   year's   sale   of 
certificates  would  mean  a  larger  profit. 

Is  this  plan  practical? 


53.    Retail  Public  Market 

A  city  market  was  opened  in  Oklahoma  City  in 
1912.  It  consisted  of  stands  on  one  of  the  widest 
streets.    It  was  an  open-air  market. 

This  market  was  established  May  21  and  80  stalls  were 
occupied.  By  the  middle  of  August  the  number  of  stalls  in 
use  was  318,  these  extending  along  3  blocks  of  the  street. 
The  people  of  Oklahoma  City  argue  that  the  wonderful 
success  of  the  street  market  indicates  the  need  of  a  market 
house  wherein  products  such  as  meat,  fish,  butter,  eggs, 
poultry,  vegetables,  and  fruits  may  be  sold.  Oklahoma 
City  is  today  experiencing  the  same  feeling  that  has  existed 
in  all  of  the  cities  where  markets  were  opened;  that  is  the 
importance  of  direct  contact  of  producer  and  consumer,  and 
it  behooves  Oklahoma  City  to  see  that  the  middleman  and 
the  huckster  do  not  crowd  the  producer  out  of  the  selling 
market.^ 

How  might  this  direct  contact  be  preserved?  On 
what  would  the  success  of  an  enclosed  market  of 
producers  depend? 

^  Report  Mayor's  Market  Commission,  New  York,  1913,  p.  77. 
Other  references  on  public  markets  include:  U.  S.  Bureau  of  the  Census, 
"Municipal  Markets  in  Cities  Having  a  Population  of  Over  30,000;" 
City  Planning  Board,  Market  Situation  in  Boston;  G.  V.  Branch, 
"Retail  Public  Markets,"  U.  S.  Department  of  Agriculture,  Year  Book, 
1914. 


82  MARKETING  PROBLEMS 

54.     Retail  Milk  Trade 

According  to  a  report  of  the  Massachusetts  Agri- 
cultural Experiment  Station  the  cost  of  distributing 
milk  at  retail  by  more  than  eighty  distributors,  some 
of  them  producers  and  some  of  them  dealers,  was 
2.64  cents  per  quart  in  1914-15,  in  six  cities  and  towns 
in  Massachusetts^.  This  cost  included  labor,  deprecia- 
tion of  equipment,  maintenance,  supplies,  bad  debts, 
rent,  interest,  taxes,  insurance,  and  some  other  small 
items.  It  was  concluded  that  labor  constituted  three- 
fifths  of  the  delivery  cost. 

For  businesses  of  various  sizes  it  was  stated  that 
the  retail  delivery  cost  per  quart  was  2.66  cents  when 
the  business  was  under  500  quarts  per  day;  2.05  cents 
per  quart  for  businesses  handling  500-1000  quarts 
daily;  2.23  cents  per  quart  for  1,000-2,000  quarts 
daily;  2.92  cents  per  quart  for  businesses  handling 
over  2,000  quarts  daily. 

This  investigation  concluded  that  under  competitive 
conditions  milk  retailing  service  is  fairly  satisfactory, 
inasm.uch  as  the  consumer  usually  receives  his  milk 
on  time  and  in  such  quantities  as  he  requires.  He  has 
the  opportunity  of  changing  from  one  dealer  to  another 
if  the  quality  is  not  satisfactory.  Nevertheless,  the 
following  conclusion  was  drawn : — 

After  all  is  said,  the  adequate  solution  of  milk  distribu- 
tion will  come  only  through  municipal  delivery  or  the  organ- 
ization of  the  milk  distributors.  In  small  cities  and  towns 
a  cooperative  milk  plant  owned  and  managed  by  two  or 
three  men  is  very  feasible.  One  plant  could  easily  deliver 
the  necessary  2,500  to  10,000  quarts  per  day  and  solve  most 
if  not  all  the  problems  of  economical  and  adequate  delivery. 

The  problem  of  milk  distribution  in  large  cities  is  diffi- 
cult, but  the  organization  of  the  small  milkmen  operating  in 
large  cities  into  a  single  distributing  agency  would  cure  many 
ills  and  bring  about  cheaper  delivery. 

The  committee  of  the  Boston  Chamber  of  Com- 
merce in  its  report^  July,  1915,  stated  that  the  dealers 

1  "Cost  of  Distributing  Milk  in  Six  Cities  and  Towns  in  Massa- 
chusetts," Massachusetts  Agricultural  Experiment  Station,  Bulletin 
No.  17  S. 

2  Boston  Chamber  of  Commerce,  Report  on  Milk  and  Cream. 


RETAIL  TRADE  83 

claimed  that  a  central  delivery  would  not  reduce 
expenses  despite  the  duplication  of  delivery  on  certain 
streets.    Their  reasons  were  the  following: 

(1)  Each  company  would  have  to  maintain  motor 
trucks  or  have  horses  and  teams  to  carry  its  product 
to  the  central  plant,  which  would  be  useless  the  rest 
of  the  day. 

(2)  The  load  could  not  be  arranged  to  carry  various 
numbers  of  different  sized  bottles. 

(3)  The  customer  could  not  secure  extra  milk  with- 
out notice,  as  the  driver  could  not  carry  extra  milk 
for  all  dealers. 

(4)  There  would  be  a  serious  loss  in  bottles,  because 
of  the  difficulty  of  supervision  and  lack  of  interest. 

(5)  Each  dealer's  driver  now  acts  as  a  soHcitor  for 
new  trade  and  collects  bills  and  bottles.  It  would  be 
necessary  to  hire  an  additional  man  to  do  this  under  a 
system  of  central  delivery. 

(6)  The  cost  of  advertising  would  be  increased. 
From  this  evidence,  what  conclusions  are  to  be 

drawn  regarding  the  practicability  of  the  cooperative 
delivery  system  in  the  milk  trade? 


55.    Bag  Coal 

In  December,  1916,  a  serious  coal  shortage  existed 
in  New  England  as  well  as  in  other  parts  of  the  United 
States.  Prices  had  been  advanced,  and  the  reserve 
stocks  on  hand  in  Boston  were  unusually  small. 
Transportation  conditions  were  precarious,  and  it  was 
believed  that  a  period  of  bad  weather,  with  severe  cold, 
might  exhaust  these  reserves. 

At  that  time,  as  previously,  a  large  number  of  con- 
sumers in  the  poorer  districts  in  Boston  were  in  the 


84  MARKETING  PROBLEMS 

habit  of  buying  coal  from  peddlers  or  grocers  in  twenty- 
five  pound  bags  at  40-60%  above  the  ton  price.  The 
peddler  bought  coal  from  the  large  coal  retailer  in  ton 
lots  at  a  reduction  in  price  of  seventy-five  cents  a  ton. 
The  peddler  bagged  the  coal  and  distributed  it.  In 
December,  1916,  the  retail  price  for  coal  in  ton  lots 
was  $9.50.  The  price  of  bagged  coal  in  Boston  was 
seventeen  cents  for  twenty-five  pounds. 

The  Commission  on  the  Cost  of  Living  suggested 
that  every  coal  retailer  should  offer  to  sell  coal  in 
twenty-five  pound  lots  at  the  ton  price;  that  is,  for 
twelve  cents  for  twenty-five  pounds,  at  his  yard  to 
customers  bringing  their  own  containers  and  carrying 
the  coal  home.  One  large  company  with  several  yards 
in  the  city  had  no  facilities  for  handling  twenty-five 
pound  lots.  Up  to  that  time  it  had  sold  coal  only  in 
lots  of  one-half  ton  and  upwards.  It  had  a  substan- 
tial business  with  coal  peddlers. 

What  attitude  should  the  company  have  taken 
toward  the  suggestion  made  by  the  Cost  of  Living 
Commission? 


PART  IV 
WHOLESALE  TRADE 

THE  problems  in  this  section  illustrate  the  func- 
tions, services,  and  costs  of  wholesale  merchants, 
cooperative  buying  associations  of  merchants, 
manufacturers'  wholesale  branches,  merchandise  bro- 
kers, commission  agents,  commission  merchants,  pro- 
ducers' cooperative  associations,  and  other  agencies 
engaged  in  wholesale  traded 

56.    Concord  Hosiery  Company — Distribution 

The  Concord  Hosiery  Cornpany,  manufacturing 
medium-price  hosiery  for  men  and  women,  is  seeking 
national  distribution.  The  product  is  to  be  widely 
advertised  under  the  manufacturer's  brand.  The 
company  has  a  large  mill  and  strong  financial  resources. 
What  avenues  of  distribution  are  open  to  this 
company?    What  are  the  advantages  of  each? 


1  General  references  on  wholesale  trade  are:  Butler,  DeBower  and 
Jones,  Marketing  Methods.  P.  T.  Cherington,  Advertising  as  a  Business 
Force  and  The  Wool  Industry.  A.  W.  Shaw  Company,  How  to  Run  a 
Wholesale  Business.  Dun's  Review,  August  23,  1913,  p.  17.  Bureau 
of  Business  Research,  Harvard  University,  Bulletin  No.  6,  "System  of 
Accounts  for  Shoe  Whole.'ialers;"  Bulletin  No.  8,  "System  of  Operating 
Accounts  for  Wholesale  Grocers;"  Bulletin  No.  9,  "Ojierating  Expenses 
in  the  Wholesale  Grocery  Business — 1916;"  Bulletin  No.  14,  "Methods 
of  Paying  Sales7t)en  and  Operating  Expenses  in  the  Wholesale  Grocers 
Bxisiness  in  1918;"  Bulletin  No.  19,  "Operating  Expetises  in  the  Wholesale 
Grocery  Bu^ness  in  1919." 

85 


86  MARKETING  PROBLEMS 

57.    Jaffrey  Shoe  Company — Relation  to 
Wholesalers 

The  Jaffrey  Shoe  Company  operates  a  shoe  manu- 
facturing business  in  Boston.  Its  product  is  women's 
shoes  of  low-price  quaHty.  This  manufacturer  now 
sells  entirely  to  wholesalers,  having  about  sixty  whole- 
sale customers.  One  salesman  and  one  of  the  officers 
of  the  company  perform  all  the  sales  work. 

What  would  be  involved  if  this  company  were  to 
change  its  policy  to  selling  direct  to  retailers^? 


58.    Dover  Company — Method  of  Distribution 

The  Dover  Company,  with  an  average-size  plant, 
has  been  organized  to  manufacture  medium-price 
workmen's  shoes.  These  shoes  are  to  be  sold  un- 
branded. 

What  class  or  classes  of  retail  stores  may  be  expected 
to  distribute  this  product?  How  can  the  shoes  be 
distributed  to  these  stores  most  economically? 

1  See  also  U.  S.  Department  of  Commerce,  Miscellanecnis  Series 
No.  S2,  The  Knit  Underwear  Industry;  J.  George  Frederick,  "Why 
Selling  Retailer  is  Becoming  Popular,"  Printers'  Ink,  February  13, 
1913,  pp.  17-20. 


WHOLESALE  TRADE  87 

59.     Woodcock  &  Eldridge — Method  of 
Distribution 

The  firm  of  Woodcock  &  Eldridge  has  a  medium- 
size  plant  in  Maryland,  for  canning  tomatoes.  This 
firm  competes  with  other  canners  in  Maryland  and 
other  eastern  states  and  also  with  California  canners. 

About  one-half  the  annual  pack  of  tomatoes  is 
now  packed  in  Maryland.  Recently,  however,  Cali- 
fornia tomatoes  have  become  severe  competitors  of  the 
Maryland  tomatoes.  Costs  of  production  are  said  to 
be  lower  in  California,  because  of  larger  production 
per  acre  and  also  greater  regularity  in  production. 
There  is  a  large  available  acreage  for  expansion  in 
CaUfornia.  The  canning  establishments  are  more  uni- 
form in  their  operation  and  more  nearly  standardized 
in  California  than  in  Maryland.  The  California 
tomato  is  more  attractive  in  appearance.  After 
canning  it  is  firmer,  more  meaty,  and  less  watery 
than  the  Maryland  tomato.  The  Maryland  tomato, 
nevertheless,  has  a  superior  flavor  ^ 

Provided  Woodcock  &  Eldridge  do  not  choose  to 
sell  their  product  to  chain  stores,  what  will  they  gain 
by  selling  direct  to  retailers?  What  will  they  gain  by 
selling  to  wholesalers  only?  Which  is  likely  to  be  the 
better  policy?  If  this  firm  decides  to  sell  to  whole- 
salers only,  between  what  types  of  wholesalers  has  it 
a  choice?    What  advantages  does  each  type  offer? 


60.     Laconia  Company — Method  of  Distribution 

The  Laconia  Company  has  been  organized  recently 
to  manufacture  a  new  cleaning  compound,  different 
from  anything  on   the  market.     This  compound  is 

•  New  York  Journal  of  Commerce,  April  3,  1920,  p.  12. 


88  MARKETING  PROBLEMS 

patented  and  it  is  the  only  product  now  made  by  this 
company.  It  is  being  introduced  first  in  Boston  and 
later  will  be  sold  in  other  parts  of  the  United  States. 

This  company  is  considering  whether  it  will  be 
better  policy  to  undertake  to  sell  direct  to  retailers  or 
to  wholesalers.  What  are  the  objections  to  distribu- 
ting through  wholesalers?  What  are  the  objections 
to  selling  direct  to  retailers? 


61.      Congress    Wholesale    Grocery    Company — 

Relation  to  Company  Stores  and  Meeting 

New  Competition 

The  Congress  Wholesale  Grocery  Company  lo- 
cated in  Chicago  has  annual  sales  of  approximately 
$5,000,000.  The  company's  operating  expense  is 
about  10.5%  of  net  sales  and  its  gross  profit  12.5%. 
It  has  a  large  volume  of  business  in  staple  and  medium- 
price  groceries.  It  also  imports  large  quantities  of 
coffee,  tea,  and  other  foreign  products,  and  has  an 
extensive  business  in  private  brands  of  good  quality. 
Its  sales  are  to  three  main  groups  of  customers: 
(1)  local  retailers;  (2)  retailers  in  many  parts  of  the 
United  States  outside  the  local  district;  (3)  hotels, 
steamships,  and  institutions. 

During  the  last  ten  years  the  sales  of  this  company 
have  increased  heavily.  The  sales  to  local  retailers, 
which  now  amount  to  about  one-third  of  the  total 
business,  have  increased  only  in  proportion  to  the 
increase  in  prices.  In  other  words,  the  physical  vol- 
ume of  sales  to  local  retailers  has  remained  practically 
constant. 

The  sales  to  outside  retailers  have  shown  greater 
increase,  but  it  is  believed  that  the  limit  has  nearly 


WHOLESALE  TRADE  89 

been  reached  for  these  sales.  Freight  rates  constitute 
a  serious  obstacle  to  further  expansion,  on  a  large 
scale,  of  sales  to  retailers  outside  the  local  district. 

The  sales  to  hotels,  steamships,  and  institutions 
have  shown  the  largest  increase  during  the  last  ten 
years.  These  sales  now  amount  to  about  forty  per 
cent  of  the  total  sales  of  the  company.  The  competi- 
tion for  this  trade  has  become  keen,  however,  and  it 
does  not  appear  that  it  readily  can  be  expanded  at 
a  rapid  rate. 

Within  the  local  territory  the  number  of  chain 
stores  has  been  growing.  Numerous  unit  stores,  fur- 
thermore, particularly  those  in  a  strong  financial  posi- 
tion, have  joined  cooperative  buying  associations.  At 
the  present  time  in  this  district  there  are  a  substantial 
number  of  company  stores  that  have  been  organized 
under  the  supervision  of  manufacturing  and  public 
utility  companies  to  sell  merchandise  to  their  employees 
at  a  slight  advance  over  wholesale  cost.  Some  of  the 
company  stores  have  been  discontinued,  but  in  the 
aggregate  they  now  handle  a  substantial  volume  of 
business.  As  a  matter  of  policy  this  wholesale  company 
never  has  sold  merchandise  to  these  company  stores. 
Some  of  its  chief  competitors,  with  wholesale  businesses 
of  similar  character,  for  several  years  regularly  have 
accepted  orders  from  company  stores. 

Should  the  Congress  Wholesale  Grocery  Company 
now  solicit  orders  from  company  stores? 

Wliat  policies  can  the  company  advantageously 
adopt  for  safeguarding  and  developing  its  business  in 
other  directions?    What  policy  is  likely  to  be  the  best? 


62.     Huron  Flour  Company — Relation  to 
Cooperative  Stores 

The  Huron  Flour  Company  of  Buffalo  is  engaged 
in  the  wholesale  flour  business.     The  company  sells 


90  MARKETING  PROBLEMS 

manufacturers'  brands  and  also  its  own  private  brands 
of  flour.  Up  to  the  present  time  it  has  sold  to  a  few 
consumers'  cooperative  stores  as  well  as  to  unit  stores 
and  bakeries. 

In  1919,  several  new  consumers'  cooperative  socie- 
ties, on  the  Rochdale  plan,  were  organized  in  its 
territory  by  members  of  labor  unions.  The  Huron 
Flour  Company  accepted  orders  for  flour  from  these 
stores  in  accordance  with  its  previous  policy.  Hitherto 
no  objection  had  been  raised  by  the  proprietors  of  unit 
stores  against  sales,  to  cooperative  societies.  In  the 
latter  part  of  1919,  however,  the  Huron  Flour  Company 
and  other  wholesalers  selling  flour  received  a  request, 
from  an  association  representing  a  substantial  number 
of  unit  stores,  that  the  wholesalers  should  cease  the 
sale  of  flour  to  cooperative  stores.  These  cooperative 
stores  were  looked  upon  by  the  unit  stores  as  "irreg- 
ular" dealers. 

What  policy  should  the  Huron  Flour  Company 
have  adopted  upon  receipt  of  this  request  from  the 
unit  store  association? 


63.    Prairie  Dry  Goods  Company — Fill-in-Orders 

The  Prairie  Dry  Goods  Company,  dry  goods 
wholesalers,  located  in  one  of  the  cities  on  the  Missouri 
River,  covers  territory  within  a  radius  of  500  miles. 
The  annual  sales  of  the  company  are  about  $2,000,000. 
The  customers  are  primarily  small  dry  goods  stores 
and  general  merchandise  stores. 

In  the  territory  that  is  covered  by  this  wholesaler's 
salesmen  are  located  a  substantial  number  of  medium- 
size  department  stores.  These  stores  regularly  place 
orders  with  manufacturers  at  the  beginning  of  each 


WHOLESALE  TRADE  91 

season  for  35  to  50%  of  their  normal  season's  purchases 
of  dry  goods. 

Should  this  wholesaler  solicit  "fill  in"  orders  from 
the  department  stores? 


64.  Calvert  Company — Retail  Branches 

The  Calvert  Company,  operating  a  wholesale  elec- 
trical supply  business  in  Baltimore,  desires  to  expand 
its  sales.  It  is  subject  to  keen  competition.  Among 
the  retailers  in  its  territory,  furthermore,  there  is  often- 
times a  severe  cutting  of  prices. 

The  Calvert  Company  has  an  exclusive  agency  in 
its  territory  for  the  products  of  one  of  the  large  manu- 
facturers of  electrical  supplies.  This  territory  is 
clearly  defined,  and  the  Calvert  Company  is  not  per- 
mitted to  infringe  on  the  territory  of  wholesalers  who 
have  similarly  exclusive  rights  in  neighboring  sections 
of  the  country.  The  Calvert  Company,  for  instance, 
is  not  permitted  by  the  manufacturer  to  solicit  orders 
for  the  exclusive  agency  goods  in  the  territory  assigned 
to  the  Philadelphia  agent. 

Each  of  the  salesmen  of  the  Calvert  Company  covers 
his  route  once  a  week.  The  salesmen  are  expected  to 
be  on  the  watch  for  new  opportunities  for  selling,  and 
newspapers  and  other  sources  are  studied  carefully  to 
learn  in  advance  of  large  contracts  to  be  let. 

In  order  to  expand  its  business,  should  the  Calvert 
Company  establish  retail  branches  while  continuing  to 
sell  to  other  stores  at  wholesale? 


92  MARKETING  PROBLEMS 

65   LoMBARDY  Company — Exclusive  Wholesale 
Agency 

A  new  baking  powder  was  put  on  the  market  in 
1915  by  the  Lombardy  Company,  which  had  long  been 
engaged  in  the  manufacture  of  products  other  than 
foodstuffs.  During  the  first  two  years  the  sale  of  the 
product  was  confined  to  territory  immediately  con- 
tiguous to  New  York.  The  object  was  to  make  an 
actual,  exhaustive  test  of  the  sales  problems  before 
entering  a  broader  market. 

When  the  company  had  reached  the  point  where 
it  was  ready  to  enter  new  fields,  it  faced  a  serious 
problem.  It  had  no  sales  organization  for  wide  dis- 
tribution. It  had  sold  up  to  that  time  through 
wholesalers.  One  of  the  questions  was  whether  the 
company  should  send  out  specialty  salesmen  or  continue 
to  distribute  through  wholesalers. 

Many  of  the  wholesalers,  particularly  the  large, 
strong  firms,  had  their  own  private  brands  of  baking 
powder.  It  was  expected  that  they  would  be  reluctant 
to  push  the  product  of  this  manufacturer.  The  retail 
and  wholesale  prices  of  this  manufacturer's  product 
were  fixed  so  as  to  yield  good  margins  of  profit. 

The  Lombardy  Company  desired  to  expand  its 
market  to  the  Middle  West  and  to  the  Pacific  Coast. 
At  the  same  time  it  wished  to  avoid  the  expense  of  a 
heavy  advertising  and  selling  campaign. 

The  Lombardy  Company  proposed  to  one  of  the 
largest  firms  of  wholesale  grocers  in  Chicago  that  this 
wholesaler  should  be  given  the  privilege  of  acting  as  the 
sole  distributor  in  the  Chicago  territory.  The  Lom- 
bardy Company's  capacity  was  limited  at  the  time, 
and  the  wholesaler  was  to  have  the  right  to  act  as 
sole  distributor  as  long  as  both  the  manufacturer  and 
wholesaler  were  satsified.  The  wholesaler  was  advised, 
however,  that  as  soon  as  the  Lombardy  Company  could 
manufacture  more  baking  powder  than  the  wholesaler 
could  sell,  other  distributors  would  be  sought  in 
St.  Paul,  Omaha  St.  Louis,  and  other  cities,  and  that 
eventually  the  product  probably  would  be  sold  to  all 
wholesale  grocers. 


WHOLESALE  TRADE  93 

Should  the  wholesale  grocer  in  Chicago  have 
accepted  the  offer  to  become  the  exclusive  distributor 
of  the  Lombardy  baking  powder  under  these  conditions? 


66.  Chickamauga  Company  —  Specialty  Salesmen 

The  Chickamauga  Company,  manufacturing  pack- 
aged food  stuffs  that  are  widely  advertised,  distributes 
its  products  through  wholesale  grocers  to  285,000  retail 
stores.  The  wholesale  grocers  carry  these  goods  in 
stock  and  fill  such  orders  as  they  receive  through  their 
salesmen  from  their  customers.  Orders  are  soUcited 
from  retailers  extensively  by  the  Chickamauga  Com- 
pany's salesmen.  The  Chickamauga  Company  does 
not  maintain  salesmen  in  each  territory  constantly, 
but  only  as  occasion  warrants.  Orders  that  are  received 
by  the  Chickamauga  Company  through  its  own  sales- 
men are  filled  either  by  drop  shipments  from  the  com- 
pany's own  plant  or  from  wholesalers'  stocks.  In 
every  instance  the  goods  are  billed  through  the  whole- 
saler specified  by  the  retailer  at  the  time  the  order  is 
given.  The  wholesaler  receives  his  normal  gross  profit 
on  such  orders. 

On  what  grounds  is  the  sales  policy  of  the  Chicka- 
mauga Company  to  be  justified? 


94  MARKETING  PROBLEMS 

67.  Community   Stores — Cooperative   Association 
OF  Wholesalers 

The  Community  Stores  plan  was  started  in  Phila- 
delphia in  the  autumn  of  1917.  This  plan  provided 
for  the  cooperation  of  24  wholesale  grocers  and  2,100 
unit  grocery  stores  in  marketing  advertised  goods. 
One  object  of  the  plan  was  to  facilitate  competition 
with  the  chain  stores  in  Philadelphia.  A  short  time 
previously  several  chain  store  companies  had  been 
merged  into  one  company  operating  1,200  branches. 

According  to  the  Community  Stores  plan  the  Whole- 
sale Grocers  Sales  Company  was  to  buy  cooperatively 
for  24  wholesale  grocers  in  Philadelphia.  For  example, 
this  company  might  purchase  several  carloads  of  one 
brand  of  cereal,  each  wholesaler  agreeing  to  take  as 
much  as  he  believed  that  he  could  sell.  It  was  agreed 
that  for  a  period  of  one  or  two  weeks  there  would  be 
heavy  local  advertising  of  the  particular  brand  thus 
purchased.  Each  of  the  wholesalers  would  under- 
take through  his  salesmen  to  sell  as  much  of  this  par- 
ticular article  as  possible.  It  was  stated  that  the 
saving  obtained  through  the  purchase  of  the  large 
quantity  would  usually  be  passed  on  to  the  retail  trade 
by  the  competition  of  the  wholesalers. 

The  retail  stores  which  were  associated  in  this  plan 
were  known  as  Community  Stores.  Each  retailer  par- 
ticipating was  to  display  over  his  door  a  sign  bearing 
the  words  Community  Store.  He  also  was  to  pay 
dues  into  an  advertising  fund.  The  local  advertising 
was  to  be  carried  on  under  the  name  of  the  Community 
Stores. 

A  wholesaler  who  took  part  in  this  plan  was  not 
compelled  to  do  all  his  buying  through  the  Wholesale 
Grocers  Sales  Company.  No  minimum  quantity  of 
purchases  was  specified.  It  was  left  entirely  to  the 
judgment  of  each  individual  wholesaler  as  to  the  quan- 
tity that  he  should  order  for  each  shipment. 

Under  this  plan  it  was  stated  that  on  one  occasion 
Babbitt's  soap  was  sold  for  five  cents  instead  of  seven 
cents,  Lux  for  ten  cents  instead  of  twelve  cents.  Camp- 


WHOLESALE  TRADE  95 

bell's  soups  three  for  twenty-five  cents  instead  of 
twelve  cents  each,  Gulden's  mustard  for  twelve  cents 
instead  of  fifteen  cents. 

In  the  operation  of  the  plan  each  manufacturer 
whose  product  was  purchased  contributed  to  the  adver- 
tising of  his  product  either  directly  or  in  additional 
discounts. 

What  are  the  merits  of  this  plan  from  the  stand- 
point of  a  wholesale  grocer  with  a  well-established 
business  and  sales  of  $1,500,000  a  year? 

What  are  the  merits  of  the  plan  from  the  stand- 
point of  a  manufacturer  of  baking  powder  who  had 
not  heretofore  sold  his  product  in  Philadelphia? 

Would  the  same  merits  obtain  for  a  manufacturer 
of  a  baking  powder  who  already  had  a  well-established 
demand  for  his  product  through  unit  stores  in 
Philadelphia?* 


68.  Crescent  Grocery  Company — Retail 
Merchants'  Buying  Association 

The  Crescent  Grocery  Company,  a  buying  associa- 
tion of  retail  grocers,  was  established  in  1912.  In  1917 
the  company  had  9,000  members  with  warehouses  in 
Newark,  Boston,  Pittsburgh,  Savannah,  and  New 
York.  It  was  stated  that  the  company  intended  to 
open  warehouses  in  the  near  future  at  seven  or  eight 
additional  points. 

According  to  the  charter  the  company  must  always 
be  owned  and  controlled  by  retail  grocers. 

The  Crescent  Grocery  Company  handles  about 
1,500  staple  articles.    They  also  have  a  line  of  150 

1  See  New  York  Journal  of  Commerce,  March  27,  1920;  pp.  10-11; 
also  Modem  Merchant  and  Grocery  World,  May  10,  1920,  p.  9. 


96  MARKETING  PROBLEMS 

items  under  their  own  brand,  which  yield  a  larger 
profit.  These  goods  bearing  their  special  brand  are 
of  high  quality.  The  managers  of  the  company  state 
that  they  do  not  intend  to  put  out  "cheap"  merchan- 
dise. It  is  planned  that  eventually  the  company  shall 
engage  in  manufacturing. 

A  member  of  this  buying  association  is  not  com- 
pelled to  carry  the  Crescent  brand  in  stock.  When  a 
member  does  put  in  the  Crescent  brand  of  goods,  it  is 
with  the  understanding  that  the  minimum  price  stated 
in  the  price  list  is  to  be  observed.  Hence  there  is  to 
be  no  price  cutting  on  this  brand. 

A  member  is  allowed  credit  up  to  50%  of  the  amount 
of  money  he  has  invested  in  his  subscription  to  the 
capital  stock  of  the  company.  If  a  grocer  has  paid 
$200  for  ten  shares  of  stock,  he  can  order  $100  worth 
of  merchandise  without  sending  a  check  with  his  order. 
He  pays  within  ten  days  from  date  of  invoice.  If  he 
orders  an  amount  exceeding  50%  of  his  investment  in 
the  stock  of  the  association,  he  must  send  a  check  for 
the  balance  of  his  order.  The  members  pay  freight 
on  their  purchases,  except  on  drop  shipments. 

A  price  list  is  issued  every  sixty  days,  supple- 
mented by  change  sheets  and  bulletins  at  frequent 
intervals.  Members  send  in  orders  by  mail  from  these 
price  lists. 

A  member  ordinarily  subscribes  to  ten  shares  of 
stock  at  $20  a  share.  He  can  buy  fewer  shares,  but 
then  he  receives  less  credit.  The  first  stock  was  taken 
out  at  $15  a  share,  then  when  a  larger  line  of  goods 
was  offered,  at  $17.50  a  share,  and  later  at  $20  a  share. 
It  is  expected  that  this  price  will  be  increased.  Many 
of  the  early  members  have  taken  out  additional  shares 
at  $20  each,  as  an  investment.  Voting  rights  are  one 
vote  for  each  share  of  stock  held.  The  stock  is  nego- 
tiable and  transferable.  The  company  cannot  buy 
back  its  own  stock.  It  is  formulating  a  plan  to  estab- 
lish a  fund  to  buy  up  all  floating  stock  and  redistribute 
it  among  members.  The  dividends  have  been  8  to  10% 
on  the  stock. 

Wherein  can  such  an  organization  be  operated  more 


WHOLESALE  TRADE  97 

economically  than  a  regular  wholesale  grocery  business? 
What  are  the  weaknesses  of  the  plan? 


69.  Cooperative  Grocery  Stores — Retail 
Merchants'  Buying  Association 

The  following  announcement  was  pubHshed  in  a 
trade  paper  March  13,  1919: 

According  to  a  report  from  Norfolk,  Va.,  plans  are  being 
laid  whereby  400  retail  grocery  stores  of  that  city  are  to 
combine  into  one  chain  to  be  knowTi  as  the  Cooperative 
Grocery  Stores.  The  stores  will  continue  to  be  individually 
owned,  but  each  one  will  be  known  as  a  member  of  the 
chain.  Membership  is  confined  to  the  members  of  the 
Retail  Grocers'  Association.  Purchases  will  be  made  on  a 
cash  basis  and  each  retailer  will  haul  his  own  goods.  A 
Buying  Committee  has  been  named  and  plans  laid  for  imme- 
diate action  in  organizing  the  members  of  the  association 
in  one  cooperative  chain  of  stores.  It  is  believed  that 
all  the  400  members  of  the  association  will  come  into  the 
plan.  The  plan  in  brief  provides  that  a  Central  Com- 
mittee will  make  all  purchases  for  all  the  cooperative  stores, 
buying  at  the  closest  cash  figures,  each  member  to  haul 
his  own  goods.  One  large  advertisement  will  announce 
the  retail  price,  with  selected  leaders  which  probably  will 
be  sold  at  cost.  As  far  as  possible,  the  cash  and  carry  plan 
will  be  adopted.  Every  article  in  the  cooperative  stores  is 
to  be  marked  with  a  price  tag,  that  all  customers  may  know 
just  what  they  are  buying  and  the  price.  All  stores  in  the 
chain  will  be  known  as  Cooperative  Grocery  Stores  and  will 
bear  identical  plate  signs.  Each  member  will  contribute  his 
'pro  rata  share  of  the  advertising  expenses.  Thirty  members 
joining  last  week  are  said  to  have  paid  over  the  full  amount 
necessary  to  cover  expenses  for  the  first  month.  Additional 
members  will  reduce  the  expense  to  individual  members. 

What  policj^  should  be  adopted  by  Richard  Hamp- 
ton, a  wholesale  grocer  in  Norfolk  with  annual  sales 
of  $500,000  a  year,  to  meet  this  situation? 


98  MARKETING  PROBLEMS 

What  policy  should  a  manufacturer  of  a  nationally 
advertised  food  product  who  has  been  selling  through 
the  wholesale  grocery  trade  adopt  toward  this  new 
organization?  The  manufacturer  has  not  employed 
any  specialty  salesmen  to  call  upon  retailers. 


70.    Procter  &  Gamble — Direct  Selling 

Until  a  few  years  ago  Procter  &  Gamble  Company 
distributed  their  products  entirely  through  wholesalers. 
Their  products  are  Ivory  Soap,  Star  Soap,  Lenox  Soap, 
and  Crisco.  The  first  modification  of  this  policy  was 
the  establishment  of  their  own  wholesale  branch  in 
New  York  to  sell  directly  to  retailers  in  the  metropol- 
itan district.  In  1919,  it  was  stated  that  the  company 
had  organized  to  sell  direct  to  retailers  in  some  other 
districts.  What  probably  were  the  motives  of  the 
company  in  making  this  change  in  its  policy? 


71.    Cavalier  Biscuit  Company — Wholesale 
Distribution 

The  Cavalier  Biscuit  Company,  of  Atlanta,  Georgia, 
manufactures  crackers  of  various  kinds.  These 
goods  have  been  sold  in  bulk  to  wholesalers.  The 
company  has  tried  experiments  in  the  sale  of  branded 
goods.    These  experiments  have  been  successful. 


WHOLESALE  TRADE  99 

The  company  is  prosperous,  and  it  desires  now  to 
increase  substantially  the  volume  of  its  business.  It 
plans  to  bring  about  this  development  gradually,  with 
well-correlated  sales  and  advertising  efforts.  In  order 
to  lay  the  foundation  for  a  large  expansion  in  the  future, 
should  the  company  change  its  pohcy  and  sell  directly 
to  retailers? 


72.    Marple  Company — Wholesale  Branches 

The  Marple  Company,  located  in  New  England, 
manufactures  carpenters'  tools  and  similar  products. 
Its  line  represents  about  1500  items,  including  tools 
such  as  hack  saws,  screw  drivers,  calipers,  and  drills. 
For  many  of  these  tools,  several  models  are  manu- 
factured. The  difference  between  models  frequently 
hes  in  the  weight  of  the  handle,  the  material  of  the 
handle,  or  some  other  slight  variation.  This  variety 
has  been  developed  in  order  to  cater  to  the  preferen- 
ces of  the  artisans  who  use  the  tools. 

The  company  has  found  that  no  w^holesaler  will 
carry  a  complete  line  of  its  products.  The  market 
for  these  tools  among  artisans  does  not  appear  suscep- 
tible of  rapid  expansion.  The  company  is  contemplat- 
ing the  establishment  of  wholesale  branch  offices 
through  which  to  sell  its  products  directly  to  retailers. 

What  method  can  be  adopted  to  assist  in  making 
such  a  change  in  pohcy  successful? 


100  MARKETING  PROBLEMS 

73.    Mikado  Company — Distributing  Branches 

In  1916  it  was  announced  that  the  Ford  Motor 
Company  had  opened  thirty-four  new  branches^. 
This  made  a  total  of  eighty-four  branches.  From 
these  branches  practically  all  shipments  were  made  to 
local  dealers.  Previously  the  distributors  in  the  cities 
where  these  branches  were  located  had  sold  at  retail 
and  also  had  sold  to  dealers  in  their  respective  terri- 
tories. A  few  other  automobile  companies  have  a 
small  number  of  branch  houses. 

Several  reasons  have  been  given  for  the  establish- 
ment of  branch  houses  by  automobile  manufacturers. 
It  is  stated  that  it  is  difficult  to  secure  desirable  dis- 
tributors with  the  necessary  capital  and  sales  ability. 
The  distributor  must  be  able  to  assume  a  large  portion 
of  the  credit  burden  involved  in  the  sale  of  automobiles. 
He  employs  numerous  salesmen  and  selects  and  super- 
vises the  work  of  dealers  in  his  territory.  In  the  large 
cities,  furthermore,  it  is  important  that  the  distributor 
should  display  the  cars  effectively,  because  of  the  large 
number  of  out-of-town  visitors  to  the  distributing 
agency,  who  may  be  not  immediate  but  prospective 
purchasers  from  local  dealers.  Distributors  who  fulfill 
these  qualifications  are  not  easily  obtained. 

The  Mikado  Company,  manufacturing  medium- 
price  automobiles  in  large  volume,  with  distributors 
located  in  about  forty  of  the  large  cities  in  the  United 
States,  is  considering  its  future  policy  toward  the 
establishment  of  sales  branches.  What  would  the 
Mikado  Company  gain  by  operating  its  own  wholesale 
branches?    What  would  it  lose? 

J  Printers'  Ink,  August  17,  1916,  p.  84. 


WHOLESALE  TRADE  101 

74.    Wholesale  Distribution  of  Meats 

The  methods  of  marketing  fresh  meat  have  long 
been  subject  to  controversy.  They  are  therefore  of 
large  public  interest  as  well  as  illustrative  of  important 
marketing  methods. 

There  are  five  large  meat  packing  companies  in  the 
United  States.  These  are  Swift  &  Company,  Armour 
&  Company,  Morris  &  Company,  Wilson  &  Company, 
and  the  Cudahy  Packing  Company.  Although  attacks 
have  very  often  been  made  against  these  large  packers 
as  constituting  a  "trust,"  there  is  no  interlocking 
ownership.  The  companies  themselves  state  that  each 
one  is  operated  altogether  independently  of  the  others 
and  that  real  competition  exists. 

According  to  the  Federal  Trade  Commission  report 
issued  in  1918^,  these  five  big  packers  killed  70%  of 
the  live  stock  slaughtered  by  all  packers  and  butchers 
engaged  in  interstate  commerce.  For  the  different 
classes  of  live  stock  the  percentages  were  stated  to  be 
as  follows:  cattle  82.2%,  calves  76.6%,  hogs  61.2%, 
sheep  and  lambs  86.4%.  It  was  further  stated  by  the 
Federal  Trade  Commission  that  there  was  only  one 
independent  packer,  namely  the  Kingan  Company, 
who  each  slaughtered  as  much  as  1%  of  the  total  inter- 
state shipments  of  cattle,  and  only  nine  independent 
packers  who  slaughtered  as  much  as  1%  of  the  total 
interstate  shipments  of  hogs.  The  big  packers  asserted 
that  they  did  not  handle  over  one-third  of  the  total 
meat  production  of  the  United  States.'?  The  remainder 
was  in  the  hands  of  the  smaller  packers  and  local 
butchers. 

The  Federal  Trade  Commission  stated  furthermore 
that  Swift  &  Company  was  the  greatest  butter  dis- 
tributor in  the  United  States,  handling  in  1916  about 

^  Summary  of  the  Report  of  the  Federal  Trade  Commission  on  the 
Meat  Packing  Industry,  July  3,  1918.  Other  references  on  the  meat 
packing  industry:  Report  of  the  Commissioner  of  Corporations  on  the 
Beef  Industry,  1905;  Rejwrt  of  the  Federal  Trade  Cotnmiss^ion  on  the 
Meat  Packing  Industry,  Part  II,  Evidence  of  Combination  among  Packers. 
Swift  &  Co.,  Analysis  of  Part  II  of  the  Federal  Trade  Commission 
Report.  Armour  &  Co.,  Is  the  Retailer  Celling  a  Sqtiare  Deal  from 
Armour?  Armoui  &  Co.,  Year  Book,  1919,  1920.  Swift  &  Co.,  Year 
Book,  1919,  1920. 


102  MARKETING  PROBLEMS 

50,000,000  pounds.  This  was  said  to  be  nearly  as 
much  as  the  combined  sales  of  the  two  largest  non- 
packing  organizations.  The  five  big  packers,  it  was 
further  stated,  handled  at  least  one-half  of  the  inter- 
state commerce  in  poultry,  eggs,  and  cheese'.  In  1916, 
they  were  said  to  have  refined  31.8%  of  the  cotton 
seed  oil  output  of  the  United  States.  It  was  also 
stated  by  the  Federal  Trade  Commission  that  Armour 
&  Company  increased  their  canned  goods  business 
from  about  $6,500,000  in  1916  to  about  $16,000,000  in 
1917,  whereas  the  combined  sales  of  these  products  by 
Austin,  Nichols  &  Company  and  Sprague,  Warner  & 
Company,  two  of  the  largest  independent  wholesale 
grocers  in  the  country,  amounted  to  only  $6,000,000 
in  1917. 

In  the  plants  of  the  big  packers  all  the  by-products 
and  waste  are  utilized^  The  utilization  of  by-products 
led  the  packers  to  engage  in  the  manufacture  of  a  great 
variety  of  non-edible  products,  such  as  glue,  fertilizer, 
pharmaceutical  products,  knife  handles,  pipe  stems, 
crochet  needles,  buttons,  washers,  brushes,  tennis 
strings,  clock  cords,  drum  snares,  and  a  long  list  of 
other  articles. 

A  previous  government  report  stated  that  the 
"value  of  the  beef  from  a  typical  steer  is  only  about 
three-fourths  of  the  total  value  of  the  products  obtained 
from  the  animal.  The  net  amount  realized  from  the 
sale  of  the  by-products  is  several  times  greater  than 
the  total  profit  of  the  beef  itself ^"  In  fact,  the  amount 
received  by  the  big  packers  from  the  sale  of  beef  has 
not  ordinarily  covered  the  amount  paid  for  the  beef 
cattle. 

The  plants  operated  by  the  big  packers  are  located 
chiefly  at  Chicago,  Kansas  City,  St.  Louis,  Omaha, 

1  Swift  &  Co.  in  their  year  book  for  1920  state  that  the  five  big 
packers  do  not  handle  more  than  15  to  20%  of  the  poultry,  eggs  and 
butter  that  enter  into  trade  channels  in  the  United  States. 

2  An  interesting  statement  on  the  use  of  by-products  is  given  by 
Edward  Mott  Woolley,  "How  Armour  Explored  New  Markets  and 
Developed  By-Products,"  Printers'  Ink,  March  1,  1917,  pp.  3-6, 
104-117. 

'  Report  of  the  Commissioner  of  Corporations  on  the  Beef  Industry, 
p.  211. 


WHOLESALE  TRADE  103 

St.  JosepK,  Fort  Worth,  Sioux  City,  and  St.  Paul. 
These  are  favorable  points  for  receiving  shipments  of 
live  stock  and  constitute  the  large  live-stock  markets 
of  the  country.  By  slaughtering  the  live  stock  at  these 
points  in  the  Middle  West,  a  saving  in  transportation 
is  effected.  About  55%  of  the  live  weight  of  a  steer  is 
marketed  as  beef.  The  remainder  is  waste  or  by- 
product. There  is  also  some  shrinkage  in  weight  and 
deterioration  in  quality  of  live  stock  when  shipped 
long  distances.  Furthermore,  in  the  case  of  beef,  a 
period  of  ripening  is  desirable.  Beef  is  considered 
better  by  consumers  ten  days  after  killing  than  at  the 
time  of  slaughter.  Consequently,  the  distance  from 
the  market  is  not  a  disadvantage  in  locating  a  beef 
slaughtering  plant. 

The  largest  markets  for  the  fresh  meat  produced 
by  the  big  packers  is  in  the  Eastern  part  of  the  United 
States.  They  furnish  a  high  percentage  of  the  total 
quality  of  fresh  beef  consumed  in  New  England  and 
in  the  North  Atlantic  district  generally.  In  the  Middle 
West  and  in  the  South,  their  proportion  of  the  total 
business  is  substantially  smaller,  because  of  the  com- 
petition of  local  butchers. 

To  supply  these  Eastern  markets,  fresh  meat  is 
shipped  in  refrigerator  cars  owned  by  each  of  the  large 
packers  to  its  own  wholesale  branches  which  are  fully 
equipped  for  refrigeration.  From  these  branches 
reports  on  sales,  stocks,  and  collections  are  sent  to  the 
home  office  at  frequent  intervals. 

From  these  branch  houses  the  meat  is  distributed 
to  retail  grocers  and  meat  dealers.  About  two  weeks' 
time  elapses  from  the  purcliase  of  the  cattle  until  the 
meat  is  sold  and  paid  for  by  the  retailer.  The  large 
meat  packer,  therefore,  has  a  stock-turn  in  his  fresh 
meat  business  of  at  least  twenty-four  times  a  year. 

One  government  report  stated  that  the  cost  of 
operating  a  branch  house  by  the  packers  was  about  the 
same  as  the  total  operating  expense  of  an  independent 
commission  merchant  or  wholesale  meat  dealer  ^ 

•  Report  of  the  Commissioner  of  Corporations  on  ifie  Beef  Industry, 
p.  263. 


104 


MARKETING  PROBLEMS 


The  Federal  Trade  Commission  in  1918  summarized 
the  distribution  system  of  the  meat  packers  as  follows  : 

Tho  packers'  distribution  of  their  products  is  effected 
through  a  system  of  branch  houses  located  in  the  large 
towns  and  cities,  and  a  system  of  refrigerator  "peddler  car" 
routes  which  reach  the  smaller  communities.  Swift  & 
Company  reach  a  larger  number  of  cities  and  towns  by 
peddler  car  than  all  other  packers,  while  Armour  &  Com- 
pany have  developed  a  system  of  delivering  from  their 
branch  houses  by  trucks,  reaching  by  this  means  over 
20,000  towns  and  making  their  total  number  of  towns 
greater  than  Swift  &  Company. 


Number 
Branch 
Houses 


Car 
Routes 


Towns 
Reached 


Armour 
Swift .  . 
Morris . 
Wilson . 
Cudahy 


366 
343 
154 
117 
113 


197 
484 
229 
187 
200 


24,681 

23,376 

4,019 

1,903 

4,198 


This  system  of  wholesale  distribution  through  branch 
houses  and  peddler  cars  is  the  bulwark  of  monopoly.  There 
is  virtually  no  limit  to  the  possible  expansion  of  their  whole- 
sale merchandising  short  of  the  complete  monopolization  of 
the  primary  distribution  of  the  Nation's  food. 

As  a  result  of  its  investigations  the  Federal  Trade 
Commission  recommended,  among  other  things: 

That  the  Government  acquire  all  privately  owned  refrig- 
erator cars  and  all  necessary  equipment  for  their  proper 
operation  and  that  such  ownership  be  declared  a  Government 
monopoly. 

That  the  Federal  Government  acquire  such  of  the  branch 
houses,  cold-storage  plants,  and  warehouses  as  are  necessary 
to  provide  facilities  for  the  competitive  marketing  and 
storage  of  food  products  in  the  principal  centers  of  distribu- 
tion and  consumption.  The  same  to  be  operated  by  the 
Govermnent  as  public  markets  and  storage  places  under 
such  conditions  as  will  afford  an  outlet  for  all  manufacturers 
and  handlers  of  food  products  on  equal  terms.  Supple- 
menting the  marketing  and  storage  facilities  thus  acquired, 
the  Federal  Govermnent  establish,  at  the  terminals  of  all 
principal  points  of  distribution  and  consumption,  central 
wholesale  markets  and  storage  plants,  with  facilities  open 
to  all  upon  payment  of  just  and  fair  charges. 


WHOLESALE  TRADE  105 

(1)  How  would  the  adoption  of  these  recommenda- 
tions of  the  Federal  Trade  Commission  affect  the  price 
of  meat? 

(2)  In  December,  1919,  it  was  stated  that  the  Texas 
Union  Packing  Company  was  to  build  a  packing  plant 
at  Houston  to  pack  all  kinds  of  hve  stock  products  and 
to  operate  a  canning  department  for  meats,  vegetables, 
and  fruits.  It  was  stated  that  the  plant  would  operate 
its  own  refrigerator  cars,  for  reaching  inland  points,  and 
that  it  would  use  refrigerator  steamships  for  exporting 
to  foreign  markets. 

How  would  the  adoption  of  the  Federal  Trade 
Commission's  reconmiendations  affect  the  marketing 
problems  of  this  companj^? 

(3)  How  would  the  adoption  of  these  recommenda- 
tions affect  the  abihty  of  a  small  independent  packer 
in  Wisconsin  to  compete  with  the  large  packers? 


75.    John  P.  Squire  &  Company 

In  Cambridge,  INIassachusetts,  is  located  the  pack- 
ing plant  of  John  P.  Squire  &  Company,  which  has  a 
capacity  of  6,000  hogs  a  day.  The  hogs  that  are 
slaughtered  at  this  plant  are  practically  all  shipped 
from  the  IMiddle  West.  Many  of  them  are  Iowa  hogs 
bought  at  IMississippi  River  points.  They  are  shipped 
East  in  train  loads  according  to  regular  schedules. 
What  factors  enable  this  plant  to  compete  with  the 
Western  plants  of  the  big  packers? 


106  MARKETING  PROBLEMS 

76.     Segregation    of   Grocery   Business   of 
Packing  Companies 

As  a  result  of  law-suits  brought  against  the  big 
packers  by  the  Federal  government,  these  packers  in 
December,  1919,  agreed  with  the  government  to  sepa- 
rate completely  their  meat  business  from  the  marketing 
of  canned  fruits,  canned  vegetables,  canned  fish,  grape 
juice,  condiments,  and  a  few  other  products.  In  July, 
1919,  Wilson  &  Company  had  sold  their  vegetable  and 
fish  canning  business  to  Austin,  Nichols  &  Company, 
wholesale  grocers.  The  packing  companies  also  agreed 
to  sell  their  interest  in  stock  yards  and  their  railroads, 
in  terminals,  market  newspapers,  public  cold  storage 
warehouses,  and  similar  interests. 

Up  to  this  time  several  of  the  big  packers  had  used 
their  branch  houses,  their  peddler  cars,  and  their  sales 
force  for  distributing  not  only  fresh  meat  but  also 
canned  goods  and  other  products  sold  through  retail 
stores.  The  Federal  Trade  Commission  criticised  this 
system  as  one  tending  to  monopoly.  The  National 
Wholesale  Grocers'  Association  claimed  that  discrim- 
ination was  being  shown  by  the  railroads  in  favor  of 
the  big  packers,  since  the  packers  were  able  to  fill  orders 
for  retailers  more  quickly  through  their  special  trans- 
portation faciUties  than  goods  could  be  delivered  by 
the  wholesale  grocers  with  ordinary  freight  shipments^ 

What  probably  will  be  the  effect  of  this  separation 
of  the  packers'  business  on  prices  and  on  competition 
with  wholesale  grocers? 


*  The  following  dispatch  was  published  in  the  New  York  Journal 
of  Commerce,  March  25,  1920:  "Chicago,  March  23,  1920.  Dissatisfied 
with  the  recent  Government  decree,  limiting  the  business  activities  of 
'the  Big  Five'  packers,  the  National  Wholesale  Grocers'  Association 


WHOLESALE  TRADE  107 

77.    International  Harvester  Company 

The  International  Harvester  Company  is  the  largest 
producer  of  farm  implements  in  the  tJnited  States.  It 
manufactures  a  full  line  of  these  products.  According 
to  the  report  of  the  Commissioner  of  Corporations 
published  in  1913^  the  company  had  a  much  larger 
share  in  the  production  of  heavy  machinery  than  in 
the  less  expensive  tools  and  implements.  It  is  stated 
in  that  report  that  in  1909  the  International  Harvester 
Company  produced  85.9%  of  the  binders  and  headers 
manufactured  in  the  United  States,  77.8%  of  the 
mowers,  77.2%  of  the  reapers,  69.1%  of  the  rakes, 
73.2%  of  the  tedders,  50%  of  the  spreaders,  43%  of 
the  disk  harrows,  15%  of  the  farm  wagons,  and  so  on 
for  other  items. 

The  International  Harvester  Company  at  that  time 
maintained  about  90  general  agencies  in  the  United 
States.  Each  of  these  agencies  was  a  wholesale  dis- 
tributing branch  with  an  office  and  warehouse  and 

announced  today  that  its  case  agJiinst  the  packers  and  the  railroad 
would    be   reopened   before   the    Interstate   Commerce    Commission. 

The  heiirinp;  is  to  be  held  in  Chicago  beginning  March  26. 

Arjay  Da  vies,  president  of  the  Grocers  Association,  in  a  com- 
munication to  the  members  of  the  body,  declared  that  the  decree 
obtained  by  Attorney  General  Palmer  against  the  packers  failed  'to 
be  of  much  consequence  to  the  wholesale  grocers,  so  tar  as  the  proposi- 
tions are  concerned  for  which  we  have  been  fighting  before  the  com- 
mission.'   Among  the  reasons  given  for  continuing  the  hearing  were: 

"The  decree  does  not  affect  cheese,  butter,  oleomargarine  and 
other  butter  substitutes,  lard  substitutes,  poultry  or  eggs. 

"The  decree  runs  against  certain  corporation  defendants,  but  does 
not  affect  the  handling  of  the  so-callea  'unrelated'  articles  by  the 
individuals  named  in  the  decree.  Other  corporations  already  are 
being  rapidly  organized  for  the  very  purpose  of  handling  those  'un- 
related'   commodities. 

'The  decree  fails  to  apply  to  the  articles  listed  in  the  decree  itself 
when  handled  by  other  corporations  and  shipped  in  the  same  car  with 
fresh  meats  and  packing  house  products,  i)rovidcd  the  car  is  owned 
or  leased  by  a  railroad  company.' 

'The  basis  of  our  whole  case,'  the  communication  says,  'is  that 
commodities  not  requiring  refrigeration  and  expedited  service  should 
not  be  permitted  to  mix  with  packing-house  products  and  fresh  meats 
getting  special  expedited  8er\nce.  If  the  packers  are  permitted  to 
continue  to  ship  our  articles  with  their  fresh  meats  and  packing-house 
products  in  the  same  car,  it  will  mean  that  they  mil  have  an  unjust 
advantage  over  every  competitor  who  does  not  also  engage  in  the 
packing  business.'  " 

^Bureau  of  Corporations,  The  International  Harvester  Co.;  see 
also  Cyrus  H.  McCormick,  "What  71  Years  in  Business  Have  Taught 
Us,"  System,  September,  October,  November,  1916. 


108  MARKETING  PROBLEMS 

storage  space.  Under  each  branch  was  a  staff  of  men 
known  as  block-men.  At  that  time  the  average  number 
of  block-men  to  a  general  agency  was  eight.  These 
block-men  were  the  principal  traveling  salesmen  of  the 
company  and  its  points  of  contact  with  retail  mer- 
chants. Under  these  block-men  was  a  more  or  less 
mobile  and  changing  force  of  canvassers,  many  of 
whom  were  temporarily  employed.  The  canvassers' 
function  was  to  call  upon  farmers  and  to  assist  retailers 
to  sell  the  company's  products. 

Each  retailer  handling  the  company's  products  was 
given  an  exclusive  agency  for  a  brand  or  brands.  In 
some  cases  one  brand  would  be  given  to  one  retailer 
in  the  town  and  another  brand  to  a  competitor. 

Sales  to  farmers  were  frequently  made  on  long 
credits,  the  farmers  giving  promissory  notes  which 
were  guaranteed  by  the  retail  merchants  who  assimaed 
the  responsibihty  for  making  collections. 

A  stock  of  machinery  and  implements  was  carried 
at  each  w^holesale  house.  Stocks  of  repau'  parts  were 
also  carried  there.  The  machines  were  shipped  to  the 
wholesale  branches  knocked  down.  In  some  cases  they 
were  also  shipped  to  the  farmers  knocked  down,  the 
company  of  course  setting  up  the  machines  for  the 
farmers  at  time  of  delivery.  The  Commissioner  of 
Corporations  reported  from  his  investigations  that  the 
percentage  of  selling  expense  was  higher  for  the  Inter- 
national Harvester  Company  than  for  its  competitors. 

A  similar  method  of  wholesale  distribution  is  used 
by  this  company's  large  competitors. 

What  special  considerations  favor  the  establish- 
ment and  operation  of  manufacturers'  wholesale 
branches  by  these  large  implement  manufacturers? 


WHOLESALE  TRADE  109 

78.    Standard  Oil  Company 

The  following  statements  regarding  the  petroleum 
industry  were  made  by  the  Commissioner  of  Corpora- 
tions in  his  report  on  the  petroleum  industry  i  :— 

The  peculiar  characteristics  of  petroleum  products  have 
led  to  the  development  of  special  methods  of  traa-^porting, 
storing,  and  delivering  them.  Pipe  lines  have  been  com- 
paratively little  used  for  handling  refined  petroleum,  vhwi\y 
because  most  of  the  refineries  are  so  situated  that  a  large 
part  of  the  more  important  movements  can  be  made  by 
water,  and  because  the  volume  of  business  over  most  other 
routes  is  not  sufficient  to  justify  the  construction  of  a 
special  transportation  line. 

A  very  large  proportion  of  the  more  common  products  of 
petroleum  is,  however,  handled  by  bulk  methods.  Tank 
steamers  are  used  for  water  transportation  and  tank  cars 
for  rail.  Moreover,  both  in  this  country  and  in  Europe, 
illuminating  oil  is  very  largely  delivered  to  retail  dealers  by 
means  of  tank  wagons,  and  this  same  method  is  often  used 
for  delivering  the  product  to  the  final  consumer.  At  least, 
in  the  United  States,  tank-wagon  delivery  is  also  often 
employed  for  naphtha.  The  bulk  system  of  transportation 
and  delivery  is  much  cheaper  than  the  use  of  barrels  or 
other  packages,  wherever  the  volume  of  business  is  large. 
Most  of  the  towns  of  more  than  one  or  two  thousand  inhab- 
itants in  the  United  States  have  tanlv-wagon  delivery  of 
illuminating  oil. 

At  that  time  the  subsidiaries  of  the  Standard  Oil 
Company  delivered  oil  by  tank  wagons,  through  their 
own  wholesale  organization,  in  81%  of  the  towns  for 
which  purchases  from  them  were  reported. 

What  competitive  advantages  did  the  Standard  Oil 
Company  obtain  by  means  of  its  system  of  wholesale 
distribution? 

1  Report  of  the  Commissioner  of  Corporalions  on  the  Petroleum 
Industry,  Part  I,  p.  44. 


no  MARKETING  PROBLEMS 

79.     Cherokee  Oil  Company 

The  Cherokee  Oil  Company  has  established  oil 
refineries  on  a  large  scale  in  southern  Texas,  where  it 
is  assured  of  a  supply  of  crude  oil.  In  what  markets 
in  the  United  States  will  it  probably  be  able  to  compete 
most  effectively  with  the  former  subsidiaries  of  the 
Standard  Oil  Company i?    Why? 


80.    American  Sugar  Refining  Company — Brokers 

In  1912  a  new  policy  in  the  development  of  the 
sales  of  a  branded  product  was  announced  by  the 
American  Sugar  Refining  Company^. 

At  that  time  it  was  reported  that  the  American 
Sugar  Refining  Company  produced  42%  of  the  output 
of  sugar  in  the  country.  A  few  years  previously  the 
company  was  said  to  have  controlled  over  60%  of  the 
output,  but  by  disposing  of  its  interests  in  the  beet 
sugar  industry  this  control  had  been  substantially 
reduced  by  1912.  At  that  time,  except  for  some  in- 
vestment holdings,  the  company  was  confining  its 
active  interests  to  the  refining  and  selling  of  cane 
sugar.  Its  refineries  were  located  at  New  York, 
Boston,  Philadelphia,  and  New  Orleans. 

^  Information  on  production  of  crude  oil  is  given  in  the  annual 
reports  of  the  U.  S.  Geological  Survey  on  Mineral  Resources  and  in 
trade  papers  such  as  the  National  Petroleum  News,  See  also  Report 
of  National  Conservation  Commission,  Vol.  Ill,  pp.  446-460.  The  plan 
of  dissolution  of  the  Standard  Oil  Company  by  court  decree  is  given, 
in  W.  S.  Stevens,  Industrial  Combinations  and  Trusts,  pp.  407-416, 
462-463.  A  good  statement  of  the  properties  and  operations  of  the 
former  subsidiaries  of  the  Standard  Oil  Company  is  given  in  Standard 
Oil  Stocks,  published  by  the  General  Service  Corporation,  New  York. 

^Printers'  Ink,  August  1,  1912,  pp.  3-4. 


WHOLESALE  TRADE  111 

In  Boston,  sugar  was  sold  direct  by  the  refiners 
through  their  own  salesmen  to  wholesale  grocers  and 
large  retailers  in  twenty-five  barrel  lots  and  upwards. 
The  average  retailer  bought  from  a  wholesaler  one  or 
two  barrels  at  a  time. 

In  New  York  and  other  parts  of  the  country,  sugar 
was  then  sold  through  brokers.  It  was  sold  by  the 
brokers  largely  to  wholesalers,  in  lots  of  at  least  twenty- 
five  barrels  for  delivery  during  a  specified  period  of 
time,  usually  thirty  days.  Each  wholesaler  or  large 
retailer  ordinarily  bought  through  the  same  broker, 
year  after  year. 

The  broker  was  paid  a  commission  by  the  refiner  of 
five  cents  per  barrel  for  New  York  sales  and  ten  cents 
for  outside  sales.  A  barrel  of  sugar  weighs  350  pounds. 
The  broker  performed  the  regular  brokerage  function, 
without  assuming  responsibility  for  delivery  or 
collections. 

Sugar  had  been  sold  for  years  by  wholesalers  and 
retailers  on  a  narrow  margin  of  profit.  It  was  a  highly 
standardized,  competitive  product,  often  used  as  a 
price  leader. 

The  American  Sugar  Refining  Company  before 
1912  had  already  been  selling  Crystal  Domino  Loaf 
sugar  in  package  form.  In  1912  it  announced  the 
introduction  of  Crystal  Domino  Granulated  in  pack- 
ages. At  the  time  it  was  stated  that  the  refiner's  selling 
price  of  package  granulated  sugar  was  to  be  3/10  of  a 
cent  per  pound  higher  than  bulk  sugar.  This  amount 
was  to  cover  the  cost  of  packaging.  The  retailer,  who 
paid  3/10  of  a  cent  more  per  pound,  was  expected  to 
charge  one  cent  more  in  rc-salc,  thus  gi\'ing  what  was 
thought  to  be  a  fair  profit  on  sugar.  There  was  also  a 
saving  to  the  retailer  in  handling,  less  loss  in  weighing, 
and  sugar  in  packages,  it  was  stated,  would  be  cleaner 
and  more  sanitary.  It  was  also  stated  at  the  time  that 
the  package  sugar  would  be  of  better  quality  than 
bulk  sugar. 

The  company  announced  that  its  initial  expenditure 
for  advertising  would  be  S30,000  in  New  York  City. 
Sampling  was  to  constitute  a  part  of  the  campaign. 


112  MARKETING  PROBLEMS 

What  attitude  was  it  advisable  for  a  large  sugar 
broker  in  New  York  in  1912  to  take  toward  this  package 
sugar  of  the  American  Sugar  Refining  Company? 


81.     Imperial  Collar  Manufacturing  Company — 
Cloth  Brokers 

The  Imperial  Collar  Manufacturing  Company  in 
Troy,  New  York,  buys  cotton  cloth  in  the  grey  and 
has  it  converted  on  its  own  account. i  This  cloth  is 
ordinarily  bought  through  brokers.  A  broker  in  this 
trade,  as  in  other  trades,  is  one  who  acts  as  an  agent 
in  the  execution  of  orders  for  buyers  or  sellers.  The 
broker  does  not  have  title  to  the  merchandise  in  the 
sale  of  which  he  assists.  He  is  not  identified  perma- 
nently with  any  individual  buyers  or  sellers.  He  is 
paid  a  commission,  usually  by  the  seller,  on  the  amount 
of  the  sale. 

^^Hiat  advantages  are  gained  ordinarily  by  the 
collar  manufacturing  company  by  buying  through 
brokers? 


82.    Appalachee  Cotton  Manufacturing  Company 
— Direct  Selling 

The  Appalachee  Cotton  Manufacturing  Company, 
with  a  plant  located  in  Georgia,  recently  took  up  the 

1  See  Melvin  T.  Copeland,  The  Cotton  Manufacturing  Industry  of 
the  United  States,  pp.  207-217. 


WHOLESALE  TRADE  113 

question  of  a  change  in  its  selling  policy.  For  twenty 
j^ears  the  company  had  sold  its  product  through  a  com- 
mission agent  on  customary  terms,  the  commission 
agent  rendering  customary  services^,  but  not  holding 
stock  in  the  manufacturing  company.  The  commission 
agent  had  headquarters  in  New  York  City. 

The  company  operated  60,000  spindles  and  1,G00 
looms.  Its  products  were  checks,  plaids,  cottonades, 
outings,  tickings,  denims,  cheviots,  and  convicts' 
stripes.  The  president  of  the  company  was  the  chief 
executive  officer.  He  was  not  interested  in  any  other 
cotton  manufacturing  company.  His  office  was  located 
at  the  mill. 

The  cotton  manufacturing  company  considered  the 
discontinuance  of  the  plan  of  selHng  through  the 
commission  agent.     It  contemplated  selling  direct. 

What  did  such  a  change  in  its  selling  policy  involve 
for  this  cotton  manufacturing  company? 


83.    Blue  Ridge  Spinning  Company  and  Keystone 

Mills 

The  following  statement  was  made  in  a  market 
report  on  the  cotton  yarn  trade,  February  18,  1919: — 

Merchants  have  been  receiving  many  offers  from  spin- 
ners to  send  yarns  on  consigmnent,  to  be  sold  at  the  best 
prices  they  will  bring.  This  sort  of  tendering  would  be 
accepted  in  normal  times.  At  present,  it  is  felt  that,  if  the 
consigmnents  were  not  sold  quickly,  the  spinners  would 
begin  asking  for  advances,  and  the  yarn  merchants  are 
trying  to  avoid  such  things.  It  is  surmised  that,  if  spinners 
can  get  advances  or  can  find  merchants  who  will  sell  con- 
signments and  remit  steadily,  they  will  keep  their  mills 

1  Melvin  T.  Cojieland,  Tfie  Cotton  Manujacluring  Industry  of  the 
United  States,  pp.  209-215. 


114  MARKETING  PROBLEMS 

ninning.  Most  yarn  merchants  in  this  market  think  the 
time  has  come  to  quit  spinninj^  for  a  time.  Otherwise,  they 
believe  a  very  serious  drop  inpriccs  will  ensue, due  to  accumu- 
lations of  yarns.  Eastern  spinners,  most  of  whom  held  off  a 
long  time  before  revising  prices,  have  begun  to  put  out 
feelers  for  orders  and  are  getting  some  business.  Their 
prices  as  quoted  show  less  demoralization  than  southern 
yarns.  The  demand  from  weavers,  webbing  factories,  up- 
holstery plants  and  other  sources  of  yarn  consumption  can- 
not continue  much  longer  on  such  a  low  scale  as  that  reported 
recently.  With  yarn  prices  revised  thoroughly,  some  leading 
merchants  expect  an  improvement  soon. 

Under  these  market  conditions  compare  the  posi- 
tions of  two  Southern  cotton  spinning  companies,  the 
Blue  Ridge  Spinning  Company  and  the  Keystone  Mills. 
The  companies  are  of  approximately  the  same  size 
with  plants  of  25,000  spindles  each.  Each  of  these 
companies  has  enough  working  capital  for  its  needs 
under  ordinary  conditions,  but  only  a  small  surplus. 
The  Blue  Ridge  Spinning  Company  has  sold  direct. 
The  Keystone  Mills  have  regularly  sold  through  a  well- 
estabHshed  firm  of  commission  agents  in  New  York. 


84.    Rogers,  Gray  &  Company — 

Commission  Agents 

Rogers,  Gray  &  Company  are  a  long-estabUshed 
firm  of  commission  agents  in  the  textile  business. 
They  are  closely  identified  with  the  mills  for  which  they 
sell.  The  mills  manufacture  ginghams,  prints,  and 
other  finished  fabrics,  and  also  grey  goods.  This  firm  is 
organized  on  the  traditional  plan  whereby  there  is  a 
separate  department  for  each  mill  in  the  offices  of  the 
commission  agent.  Each  travehng  salesman  ordinarily 
sells  only  for  a  single  department. 


WHOLESALE  TRADE  115 

The  product  of  each  mill  is  styled  and  priced  each 
season  independently  of  the  others,  under  the  general 
supervision  of  the  executives  of  the  firm.  No  super- 
vision is  exercised  over  the  manufacturing  operations 
in  the  plants.  Members  of  the  firm  are  not  treasurers 
of  any  of  the  mills. 

What  suggestions  should  be  be  given  for  the  re- 
organization of  the  operating  plans  of  this  firm? 


85.     Middlesex  Company — Export  Department 

The  Middlesex  Company  is  a  commission  agent  in 
the  textile  business.  Its  headquarters  are  in  New 
York  City,  with  branch  sales  offices  located  in  Bos- 
ton, Chicago,  St.  Louis,  San  Francisco,  and  three 
other  cities.  This  company  sells  the  product  of  about 
fifteen  mills  located  in  the  North  and  in  the  South. 
These  mills  operate  over  500,000  spindles.  They  pro- 
duce standard  gray  goods,  also  cotton  flannels  and 
other  colored  yarn  goods.  The  seUing  house  controls 
through  stock  ownership  about  one-half  the  mills  for 
which  it  sells.  It  has  an  agreement  with  each  mill 
whereby  the  commission  house  gives  directions  as  to 
the  quantity  of  each  style  to  be  produced  during  the 
week,  month,  or  other  definite  period  of  time.  The 
actual  management  of  the  operations  of  each  mill  is 
in  the  hands  of  the  officers  of  the  mill  company. 

This  selling  house  is  considering  the  establishment 
of  an  export  department  with  its  own  representatives 
in  foreign  markets  to  develop  the  export  trade  in  the 
products  of  the  mills  for  which  it  sells,  i  Heretofore 
some  of  its  goods  have  been  sold  for  export  through 
other  channels. 

What  will  the  Middlesex  Company  need  to  con- 
sider in  reaching  its  decision  regarding  the  establish- 
ment of  the  export  department? 


IIG  MARKETING  PROBLEMS 

86.  White  &  Company — Manufacture  of 
Garments  by  Commission  Agents 

In  May,  1913,  it  was  announced  that  White  & 
Company,  a  firm  of  commission  agents,  had  decided 
to  offer  finished  lines  of  aprons  and  rompers  made  from 
ginghams  manufactured  in  one  of  the  mills  for  which 
it  sold.  At  the  time  this  announcement  was  made, 
some  of  the  trade  reports  called  attention  to  the  fact 
that  the  Amoskeag,  Everett,  and  Riverside  Mills,  ail 
producers  of  colored  yarn  cloth  largely  used  in  ready- 
to-wear  goods,  had  tried  out  the  plan  of  issuing  labels 
to  be  distributed  to  the  manufacturing  trades  to  be 
attached  to  garments.  Many  labels,  it  was  stated, 
had  been  used  on  garments  made  from  cloth  of  other 
mills.  The  plan  proposed  by  this  firm  of  commission 
agents  included  the  use  of  the  mill's  label  on  the 
garments  made  from  the  product  of  the  mill. 

Numerous  large  wholesalers  operate  garment  fac- 
tories, and  there  are  also  hundreds  of  small  garment 
manufacturers  to  whom  these  ginghams  previously 
had  been  sold. 

It  was  further  contemplated  at  the  time  this  an- 
nouncement was  made  that,  if  it  were  successful,  it 
should  be  extended  to  the  manufacture  of  pajamas, 
night  gowns,  underwear,  etc. 

Does  this  appear  to  be  a  practical  plan  for  the 
commission  house  to  adopt? 


87.    Textile  Banking  Company 

In  May,  1919,  a  joint  announcement  was  made  by 
the  Guaranty  Trust  Company  of  New  York  and  the 
Liberty  National  Bank  that  incorporation  papers  of 


WHOLESALE  TRADE  117 

the  Textile  Banking  Company,  Inc.,  had  been  filed  in 
Albany,  and  that  the  new  corporation  would  open  for 
business  as  soon  as  the  charter  was  granted.  It  was 
stated  that  the  company's  headquarters  were  to  be  in 
the  up-town  wholesale  dry  goods  district.  The  new 
company  was  stated  to  have  the  banking  support  of 
both  the  banks  making  the  announcement.  The 
following  statement  was  made  regarding  its  plans : — 

The  Textile  Banking  Company  will  perform  the  functioa<? 
of  banker  for  mills  in  the  textile  industry,  which  functions 
have  been  performed  for  many  years  by  firms  known  as 
factors  or  commission  houses.  In  addition  the  company 
will  finance  the  fundamental  requirements  of  mills,  such  as 
their  raw  materials,  and  in  many  other  ways  offer  to  the 
mills  service  which  will  be  very  helpful  in  the  operation  and 
expansion  of  their  business. 

The  Pelican  Silk  Mills,  a  medium-size  silk  manu- 
facturing company  in  New  Jersey,  needs  financial 
assistance  in  carr3dng  on  its  business,  because  its 
working  capital  is  small.  What  advantages  will  the 
silk  manufacturing  company  obtain^  from  securing 
financial  assistance  from  a  bank  such  as  this  rather 
than  from  a  commission  house? 


88.    Castine  Manufacturing  Company — Sales 
Department  and  Stock  Department 

The  Castine  IManufacturing  Company  operates  a 
large  worsted  mill  in  New  England,  making  goods  for 
both  men's  and  women's  wear^.     This  company  has 

1  James  Chittick,  Silk  Manufacturing  and  Its  Problems;  also  Daily 
News  Record,  April  9,  1920,  p.  1. 

^  P.  T.  Cherington,  The  Wool  Iruiustry;  American  Wool  and 
Cotton  Reporter,  April  2,  1914,  p.  439;  United  States  Tariff  Board, 
Report  on  Schedule  K,  pp.  847  et  seq. 


MS  MARKETING  PROBLEMS 

decided  to  sell  direct  instead  of  through  a  commission 
agent.  What  classes  of  buyers  constitute  its  potential 
market?  What  market  information  will  it  need  cur- 
rently for  its  sales  department? 

The  company,  furthermore,  is  considering  whether 
it  should  plan  to  arrange  a  stock  department  to  carry  a 
stock  of  finished  goods.  What  factors  must  be  con- 
sidered in  reaching  a  decision  on  this  question? 


89.    Furniture  Exhibitions 

In  the  furniture  trade  an  exhibition  is  held  twice  a 
year  at  Grand  Rapids.  Similar  exhibitions  are  held 
at  Chicago  and  at  one  or  two  other  points. 

At  the  exhibition  in  Grand  Rapids,  for  example, 
sample  lines  of  furniture  are  displayed  by  manufac- 
turers. The  exhibitions  are  attended  by  buyers  from 
all  parts  of  the  country.  In  July,  1916,  for  instance,  it 
was  reported  that  at  the  exhibition  in  Grand  Rapids, 
330  manufacturers  displayed  their  lines  and  that  the 
exhibitions  was  attended  by  1,750  buyers.  Some  orders 
are  given  at  the  exhibitions.  In  other  instances,  the 
buyer  waits  for  the  call  of  a  salesman  from  the  manu- 
facturer to  place  his  orders  definitely. 

Why  should  the  Hudson  Company,  a  large  furni- 
ture retailer  in  New  York  City,  send  a  representative 
to  the  Grand  Rapids  exhibition? 

Why  are  these  exhibitions  an  economical  agency 
for  a  furniture  manufacturer,  for  example,  whose  plant 
is  located  in  southern  Ohio? 


WHOLESALE  TRADE  119 

90.  Chicago  Commission  Merchant 

In  the  trade  in  perishable  farm  produce  there  are 
several  middlemen. ^  While  each  type  is  distinct  in 
principle,  in  practice  there  are  frequent  instances  of 
overlapping  in  functions.  The  chief  middlemen  in  the 
trade  in  perishable  farm  produce  in  the  large  cities  are 
the  car-lot  wholesalers,  the  commission  merchants,  the 
jobbers,  and  the  brokers. 

The  car-lot  wholesaler  buys  in  car  lots  on  his  own 
account  and  sells  in  smaller  lots  to  jobbers. 

The  commission  merchant  receives  shipments  on 
consignment  from  country  shippers  and  occasionally 
from  farmers.  He  is  paid  a  commission,  commonly 
about  7%  of  the  selling  price.  He  handles  each 
consignment  that  he  receives  according  to  his  own 
judgment.  These  consignments  may  be  in  car  lots  or 
in  less  than  car  lots.  The  commission  merchant  sells 
to  jobbers  or  to  retailers.  He  collects  payment,  and 
after  deducting  his  commission  and  any  incidental 
expenses  he  remits  the  balance  to  the  shipper. 

The  jobber  is  a  merchant  dealing  on  his  own 
account.  He  purchases  outright  the  goods  that  he 
handles.  He  sells  to  retailers  and  performs  the  usual 
wholesale  functions. 

The  broker  acts  as  an  agent  for  shippers  of  car  lots. 
He  is  paid  a  commission.  He  may  or  he  may  not 
collect  payment  for  the  merchandise  that  he  sells. 
Before  closing  any  transaction,  however,  he  must 
obtain  confirmation  from  the  shipper  as  to  price  and 
terms  of  sale.     The  broker  generally  handles  a  much 

'References  on  the  marketing  of  farm  produce:  L.  D.  H.  Weld, 
The  Marketing  of  Farm  /Vorfud.s,(bibliograpliy).  Annals  of  the  American 
Academy  of  Political  and  Social  Science,  September,  1911,  November, 
1913.  G.  K.  Holmes,  "Systems  of  Marketing;  Fjirm  Products," 
United  States  Department  of  Agriculture,  Report  No.  98,  1913.  Report 
of  the  Mayor's  Market  Commission  of  Ncio  York  City,  1913.  E.  G. 
Noui'se,  The  Chicago  Produce  Market  (bibliography).  Arthur  B. 
Adams,  "Marketing  Perishable  Farm  Products,  Colinnhia  University 
Studies,  Vol.  LXII,  No.  170.  J.  li.  Collins,  J.  W.  Fisher,  Jr.,  and 
Wells  A.  Sherman,  "Methods  of  Wholesale  Distribution  of  Fruits  and 
Vegetables  on  Large  Markets,"  United  States  Department  of  Agricidture, 
Bulletin  No.  267.  Federal  Trade  Commission,  Report  on  the  Wholesale 
Marketing  of  Food,  1920.  The  United  States  Department  of  Agriculture 
issued  November  1,  1915,  a  comprehensive  List  of  Publications  on  the 
Marketing  of  Farm  Products. 


120  MARKETING  PROBLEMS 

smaller  portion  of  the  trade  than  the  car  lot  wholesalers 
and  commission  merchants. 

Suppose  that  a  new  firm  is  to  be  organized  to  carry 
on  a  commission  merchant  business  in  vegetables  in 
Chicago  with  ample  financial  resources.  Where  would 
it  probably  find  it  advantageous  to  seek  a  location  for 
its  store?  Why?  What  are  the  drawbacks  to  the 
selection  of  that  location? 


91.  Sources  of  Supply  for  Boston  Commission 
Merchant 

From  what  sourcesi  does  a  commission  merchant  in 
Boston  dealing  in  berries  and  vegetables  receive  ship- 
ments? How  do  the  conditions  as  to  the  sources  of 
shipments  affect  the  operating  expenses  of  the 
commission  merchant? 


92.  William  Blackwood — Selling  Farm  Produce 
FOR  Chicago  Market 

Mr.  William  Blackwood,  a  farmer  located  about 
60  miles  south  of  Chicago,  with  good  railroad  connec- 
tions, desires  to  sell  fresh  vegetables  in  the  Chicago 
market.  There  is  little  opportunity  for  organizing  a 
local  cooperative  association  of  producers,  and  few 
buyers  regularly  visit  the  town. 

1  City  Planning  Board,  Market  Situation  in  Boston,  1916. 


WHOLESALE  TRADE  121 

On  30  acres  of  his  farm  he  has  a  large  production  of 
fresh  vegetables  —  lettuce,  beets,  spinach,  carrots, 
squash,  radishes,  onions,  and  other  vegetables.  He  is 
producing  under  typical  conditions,  planning  his  work 
scientifically  so  that  he  has  vegetables  in  the  market 
from  the  middle  of  May  until  late  fall.  He  utilizes 
certain  acreage  in  rotation  so  that  it  produces  two 
crops  per  season. 

What  methods  can  he  use  for  marketing  his  products 
in  Chicago?!     Which  method  is  likely  to  be  preferable? 


93.  Commission  Merchant  and  Jobber 

A  shipper  of  berries  in  the  South  wishes  to  estab- 
lish a  new  connection  with  a  commission  merchant  in 
Boston.  He  has  a  choice  between  two  firms,  each  well 
established  and  strong  financially.  One  of  these  firms, 
the  Dorchester  Company,  does  only  a  commission 
business;  the  other,  the  Roxbury  Company,  acts  as  a 
commission  merchant  and  also  operates  on  its  own 
account  as  a  jobber. 

Which  of  these  firms  is  to  be  preferred  by  the 
shipper? 

'  E.  G-  Nourse.  The  Chicago  Produce  Market. 


122  MARKETING  PROIiLKMS 

94.  Fruit  Auctions 

The  Roneral  manager  of  a  large  fruit  shipping 
organization  in  the  West  desires  a  report  on  tlie  system 
of  fruit  auctions  in  Boston, ^  What  information  should 
be  embodied  in  this  report? 


95.  Terminal  Market,  Boston 

The  following  recommendation  was  made  by  the 
Massachusetts  (Jommission  on  the  Cost  of  Living  in 
a  report  dated  January  22,  lOlT.^ 

In  any  plan  for  improved  transportation  conditions  and 
bettor  terminal  fa(;ilities,  provision  sliould  be  made  for  a 
wholesale  terminal  market.  The  wholesale  produce  market 
in  Boston  is  located  in  a  district  where  it  was  established 
nearly  a  century  a^o.  With  the  growth  of  the  metropolitan 
district,  and  the  changes  in  the  relation  of  the  Boston  market 
to  tTie  other  cities  in  the  Commonwealth,  the  old  market 
district  has  become  more  and  more  congested.  Because  of 
the  lack  of  terminal  facilities  large  quantiti(>s  of  perishable 
fruits  and  vegetables  are  carted  to  the  market  and  then 
carted  back  to  the  freight  yards  to  be  reshipped  to  other 
cities.  Unnecessary  carting  and  loss  from  exposure  cost 
hundreds  of  thousands  of  dollars  each  year.  We  believe 
that  the  retail  and  jobbing  markets  are  now  conveniently 
located,  but  that  a  wholesale  market  for  commission  mer- 
chants and  other  large  receivers  of  produce  should  be  estab- 
lished at  the  terminal  in  South  Boston.     Such  a  terminal 

'  A  brief  account  of  some  experiences  with  auctions  in  New  York 
City  is  given  in  the  Second  Annual  Report  of  the  Department  of  Food 
and  Markets,  New  York. 

2  Miussaclmsctffl  Commission  on  the  Cost  of  Living,  Report  on 
Relation  of  TranRpnrtation  to  Prices,  January  22,  1917,  pp.  4-5.  Soo 
also  Report  of  the  Termiiuil  Commission  on  Terminal  Facilities,  Massa- 
chusetts Senate  Document  No.  401,  April  1,  I'JIG. 


WHOLESALE  TRADE      .  123 

market  would  benefit  consumers  in  Boston  and  numerous 
other  cities;  it  would  also  afford  better  marketing  facilities 
to  farmers  throughout  the  State. 

Discuss  this  roconnnendation  from  the  standpoint 
(a)  of  a  car-lot  wholesaler  in  Boston  dealing  in  berries 
and  vegetables,  (1))  of  a  commission  merchant  who  also 
has  a  substantial  amount  of  jobbing  busiueiis. 


96.  Weatherhead  &  Company — Terminal  Markets, 
New  York  City 

The  following  statement  summarizes  the  conclu- 
sions of  the  Mayor's  Market  Commission  of  New  York 
City  in  1913 :» 

The  foregoing  analysis  of  present  conditions  should 
make  clear  the  fact  that  the  marketing  of  farm  products  in 
this  city  today  is  a  problem  of  distribution  from  transpor- 
tation terminals;  it  can  be  made  elhcient  only  by  the  co- 
ordination of  tile  collection,  transportation,  and  distril)ution 
of  foodstuffs.  In  other  words,  we  nuist  develop  the  type  of 
market  Ihtc  that  will  make  for  the  quickest  reciMpt  and 
disposal  of  goods.  We  must  educate  shippers  to  the  advan- 
tages and  needs  of  this  market  and  the  methods  to  be 
employed  by  them  to  ensure  quick  marketing  of  tiieir  goods, 
and  the  buying  public  here  to  watch  mark«>t  conditions  so 
that  they  may  buy  more  intelligently  and  so  that  there  may 
be  popular  demand  for  the  goods  that  are  pl(>ntiful.  Only 
a  market  which  distributes  fooilstutTs  quickly  and  econom- 
ically will  (Micourage  productTs  to  ship  to  it. 

A  study  of  the  geography  of  the  city,  the  present  con- 
ditions and  methods  of  marketing,  i.  e.,  congestion  at  down- 
town terminals,  inacUnjuacy  of  present  terminals,  amount  of 
trucking  and  long  truck  hauls  necessary,  etc.,  the  ditliculties 
that  confront  shippers,  and  the  forces  that  now  operate  to 

•  RrfHtrl  of  the  Mayor's  Market  Commission,  New  York  City,  191 S, 
pp.  10-11. 


124  MARKETING  PROBLEMS 

keep  goods  from  reaching  our  market,  points  to  the  con- 
clusion that  the  estabUshment  of  large  terminal  wholesale 
markets  in  the  five  boroughs  of  the  city  is  the  first  essential 
step  in  the  bettering  of  conditions.  We  have  in  this  city 
two  distinct  problems — the  problem  of  the  primary  or 
wholesale  marketing  of  the  goods  when  they  reach  the  city 
in  large  unbroken  lots,  and  the  problem  of  retail  distribution. 

Though  investigation  shows  the  largest  increase  in  prices 
to  be  added  by  retailing,  it  also  shows  that  the  greatest 
hindrances  to  efficient  distribution  exist  in  the  wholesale 
marketing  of  the  food  products  received  here.  Part  of  the 
high  cost  of  retailing  is  due  to  the  quantity  and  kind  of 
service  that  the  business  demands,  as  compared  with  whole- 
saling, and  part  is  due  to  a  lack  of  responsiveness  of  retail 
markets  to  conditions  of  supply,  because  of  the  chaotic 
condition  of  the  present  wholesale  market.  Producer  and 
consumer  are  not  kept  far  apart  now  by  the  retailers  to  any 
such  degree  as  they  are  by  the  cumbersome  methods  of 
wholesaling.  We  have  in  the  city  a  large  number  of 
small  grocery  and  provision  stores  which  serve  the  people 
very  well.  They  cater  to  the  needs  of  their  regular  cus- 
tomers and  are  convenient  supply  depots  for  apartment 
house  dwellers  who  have  no  room  to  store  supplies  and  wish 
to  buy  often  and  nearby.  A  type  of  municipal  retail  market 
that  can  compete  with  these  neighborhood  stores  has  yet 
to  be  developed. 

Consumers  as  a  class  are  intensely  conservative  and  slow 
to  change  established  habits.  If  they  are  used  to  marketing 
in  a  certain  way  at  certain  kinds  of  stores,  they  are  not  easily 
induced  to  change.  It  would  be  useless  to  spend  public 
moneys  on  a  system  of  retail  municipal  markets,  the  success 
of  which  would  depend  upon  a  considerable  change  in  the 
habits  of  the  buying  public  and  in  the  aims  of  marketmen. 
The  possibility  that  the  city  could  offer  space  in  its  retail 
markets  to  dealers  at  lower  rents  than  those  demanded  in 
other  buildings  does  not  necessarily  mean  that  for  that 
reason  the  dealers  would  sell  goods  cheaply.  On  the  con- 
trary, their  low  rents,  and  the  necessarily  higher  prices 
outside,  would  give  them  a  chance  for  a  profit  which  pre\aous 
experience  indicates  they  would  not  share  Mallinglj'-  with  the 
public.  This  condition  was  found  to  prevail  in  one  of  the 
retail  markets  of  BerUn.  It  is  difficult  to  see  how  it  could  be 
avoided  in  a  public  retail  market,  unless  the  city  itself, 
through  its  employees,  went  into  the  actual  buying  and 
selling  of  food  in  the  markets,  or  attempted  a  system  of 
price  regulation — practices  whose  desirability  is  question- 
able. Retail  prices  will  be  lowered  when  all  are  given  facil- 
ities for  buying  cheaply  and  when  the  forces  of  demand  and 
supply  are  given  free  play. 


WHOLESALE  TRADE  125 

Systems  of  municipal  retail  markets  have  not  been  a 
success  where  tried  in  large  cities  under  conditions  similar 
to  our  own.  In  Berlin  12  markets  out  of  a  system  of  14 
have  been  abandoned.  They  have  been  gradually  given  up 
and  the  buildings  turned  over  to  other  uses.  The  same  thing 
has  happened  in  Paris,  where  out  of  an  original  system  of 
33  only  half  are  now  in  operation.  Only  those  in  direct 
connection  with  the  terminal  markets  have  been  found  to 
be  of  value.  The  case  of  Jefferson  Market  in  New  York  is 
typical  of  what  happens  here  and  elsewhere  with  this  type 
of  market.  The  trade  in  Fulton  and  Washington  Markets 
is  becoming  more  and  more  a  jobbing  trade  and  less  a  retail 
trade — supplying  large  customers  hke  boarding-houses, 
hotels,  and  restaurants.  The  most  flourishing  public  market 
we  have  now  is  West  Washington,  which  is  a  wholesale 
market,  and,  in  a  way,  a  terminal  market,  though  its  possi- 
bilities as  such  in  the  way  of  waterfront  development  and 
railroad  connection  have  not  been  made  full  use  of.  As  it 
is,  it  pays  the  city  a  profit  of  S34,000  annually  on  the 
invesftment. 

Whatever  form  the  retail  distribution  here  eventually 
takes — whether  it  be  private  stores,  municipal  markets, 
cooperative  stores,  or  what  not,  it  will  be  essential  to  have 
a  large,  well-organized  wholesale  market  in  each  borough. 
That  is  the  first  stop.  The  type  of  retail  distributor  is  of 
little  importance,  if  it  has  difficulty  in  getting  supplies. 

The  idea  of  wholesale  terminal  markets  is  not  new 
outside  of  New  York ;  it  is  not  new  in  New  York,  but  it  has 
yet  to  be  recognized  and  applied  here  in  a  large  way.  In 
Berlin  they  have  had  a  wholesale  terminal  market  for  over 
twenty  years,  the  only  fault  being  that  it  is  not  now  large 
enough  to  accommodate  the  trade  that  seeks  it;  they  have 
one  in  Munich,  in  Frankfort,  London,  and  other  cities 
abroad.  It  is  the  recognized  type  of  municipal  market  in 
the  larger  cities  of  Germany,  where  thoy  have  given  the 
subject  close  stud}'.  Its  effectiveness  lies  in  the  fact  that 
such  a  market  cuts  out  unnecessary  steps — it  does  not 
introduce  radical  changes  in  business  methods,  but  rather 
gives  business  men  the  moans  for  more  efficient  service.  It 
is  axiomatic  that  business  is  conservative  and  slow  to  change 
its  methods  and  habits.  We  recognize  the  futility  of  pro- 
posing radical  changes  theoretically  alluring  or  untried 
methods  that  will  meet  with  distrust. 

The  lack  of  system  in  the  wholesale  marketing  here 
today  is  a  handicap  to  efficient  ser\'ico  and  a  cause  of  groat 
expense.  This  expense  is  of  three  kinds:  one,  the  actual 
cost  added  to  the  goods  for  the  trucking  and  rohandling 
necessary;  two,  the  loss  of  goods  dotorioratod  through 
exposure  to  harmful  tomporaturos  aft(>r  unloading  from  tho 
cars  or  through  bruising  in  being  handled  many  times;  and. 


126  MARKETING  PROBLEMS 

three,  the  loss  of  goods  kept  from  market  because  of  the 
lack  of  facilities.  These  three  factors  would  be  eliminated 
in  proper  terminal  markets.  It  is  likely  also  that  in  time 
the  expense  and  loss  in  regrading  goods  would  be  reduced 
as  the  market  management  makes  known  throughout  the 
producing  sections  the  methods  of  grading  and  marketing 
is  of  three  kinds. 

The  distribution  of  food  in  the  city  today,  as  has  been 
shown,  takes  place  chiefly  from  the  primary  market  in  lower 
Manhattan.  While  it  is  true  that  in  most  places  the  ideal 
condition  is  to  have  the  wholesale  marketing  done  in  one 
place,  where  all  buyers  and  sellers  may  congregate,  and  that 
a  division  of  the  wholesale  market  results  in  a  loss  in  econ- 
omy, the  results  of  the  policy  of  concentration  that  confront 
us  today  in  New  York  lead  to  the  conclusion  that  greater 
economy  will  be  effected  in  this  city  by  a  division  of  the 
primary  market  among  the  five  boroughs.  New  York  City 
is  divided  by  natural  waterways  and  political  lines  into 
what  are  practically  five  cities.  It  has  grown  too  large  to 
depend  on  one  market,  and  the  trade  in  that  market  has 
grown  to  such  proportions  that  we  could  hardly  build  a 
terminal  market  large  enough  to  accommodate  it  without 
congestion.  Even  if  we  could,  it  would  not  do  away  with 
the  necessity  of  having  jobbers'  markets  to  reach  out  to  the 
retailers  in  outlying  sections,  and  the  latter  would  be  brought 
no  nearer  the  sources  of  supply.  We  believe,  also,  that,  for 
the  present  at  least,  the  number  of  such  markets  should  be 
restricted  to  one  for  each  borough,  so  that  each  may  be 
assured  of  as  large  a  supply  as  possible  and  may  attract  as 
large  a  number  of  buyers  as  possible. 

These  wholesale  terminal  markets  should  be  what  their 
name  implies — markets  on  the  terminals  of  as  many  transit 
lines  as  possible,  so  that  they  will  be  supplied  with  a  full 
range  of  commodities.  They  should  be  union  freight  ter- 
minals with  modern  marketing  facilities.  No  one  railroad 
brings  a  great  enough  variety  of  products  to  supply  a  market 
with  all  lines.  They  should  have  sufficient  space  for  handling 
cars  from  different  lines  with  dispatch.  Refrigeration  should 
be  provided  for  both  temporary  and  long  storage,  and  there 
should  be  refrigerated  rooms  into  which  refrigerated  cars 
could  discharge  their  contents  without  change  of  tempera- 
ture and  consequent  injury  to  the  goods.  The  handling  of 
produce  should  be  by  machinery  as  far  as  possible.  Separate 
parts  of  the  markets  should  be  devoted  to  the  sale  of  different 
products,  but  the  market  should  be  so  arranged  that  a 
dealer  could  buy  his  various  supplies  without  going  too  far. 
Connected  with  each  market  should  be  a  post  office,  bank, 
telegraph  office,  public  telephone,  restaurant,  infirmary,  and 
comfort  station.    Of  course,  many  details  must  be  left  for 


WHOLESALE  TRADE  127 

future  elaboration,  but  it  is  probable  that  economy  will  be 
effected  by  having  a  delivery  service  by  automobile  trucks 
belonging  to  the  market.  Each  market  should  also  have  a 
retail  department  and  a  canning  and  preserving  plant. 

A  prominent  feature  of  nearly  all  foreign  municipal 
wholesale  markets  is  the  provision  for  sales  at  auction  of  all 
goods  consigned  directly  to  the  market,  conducted  by 
bonded  auctioneers  licensed  by  the  city.  Such  sales  are 
not  provided  for  in  any  of  our  public  markets  at  present — 
there  are  no  markets  to  which  shippers  can  now  consign 
directly;  they  must  send  goods  to  individual  dealers.  The 
auction  method  is  now  used  here  in  disposing  of  California 
fruits  and  some  few  other  products,  and  has  recently  been 
introduced  into  the  live  poultry  trade. 

The  terminal  markets  should  be  self-supporting,  the 
rents  charged  being  sufficient  to  pay  interest  on  the  money 
invested  and  a  sinking  fund,  and  to  cover  the  loss  on  the 
property  by  exemption  from  taxation.  The  markets  should 
not  be  operated  with  the  purpose  of  making  them  a  source 
of  revenue  to  the  city,  but  every  effort  should  be  made  to 
have  them  operated  in  such  a  way  that  the  costs  of  distribu- 
tion shall  be  minimized  and  prices  kept  at  normal  levels. 

A  system  cannot  hold  together  or  work  for  a  definite 
purpose  unless  it  is  organized  and  its  control  vested  in  a 
competent  executive  body.  Too  many  city  departments 
now  have  authority  over  the  markets.  Their  powers  should 
be  vested  in  one  Department  of  Markets,  to  be  created  by 
amendment  of  the  Charter.  The  control  is  now  so  split  up 
that  (1)  the  Board  of  Aldermen  has  charge  of  the  selection 
of  sites;  (2)  the  Borough  President  has  charge  of  mainte- 
nance; (3)  the  Department  of  Finance  collects  the  rents; 
(4)  the  Department  of  Health  has  charge  of  the  sanitary 
conditions  of  the  markets  and  the  inspection  of  food;  (5) 
the  Fire  Department  takes  measures  for  protection  from 
fire;  (6)  the  Policy  Department  makes  traffic  regulations, 
etc.;  (7)  the  Bureau  of  Weights  and  Measures  has  its 
authority;  and  (8)  the  Department  of  Docks  and  Ferries 
collects  dock  rents  where  markets  are  on  the  water  front. 
These  functions  should  be  centered  in  one  Department, 
which  should  exercise  supervision  over  the  entire  marketing 
system  of  the  city.  It  should  keep  a  record  of  all  goods 
received  and  sold  at  the  markets,  maintain  a  system  of 
inspection  of  foodstuffs,  issue  bulletins  of  supplies  received 
and  market  prices,  establish  standard  requirements  for 
packing  and  grading,  etc. 

The  executive  functions  of  such  a  Department  of  Mar- 
kets should  be  vested  in  a  Board  of  ALirket  Commissioners, 
one  from  each  borough,  to  be  appointed  by  the  Borough 
President,  to  serve  for  a  term  of  years  or  during   good 


128  MARKETING  PROBLEMS 

behavior,  such  Board  to  choose  its  own  chairman.  Such 
Market  Commissioners,  as  well  as  the  market  auctioneers, 
should  be  forbidden  to  have  any  personal  interest  in  the 
business  done  in  the  markets. 

There  are  within  a  radius  of  a  few  hundred  miles  of 
New  York  many  small  farmers  on  whom  present  conditions 
are  a  heavy  burden.  On  their  farms  quantities  of  food- 
stuffs go  to  waste  every  year,  because  the  cost  of  getting 
them  to  market  is  too  great.  From  some  places  distant  for 
passengers  only  two  hours  from  New  York  it  takes  from  ten 
days  to  two  weeks  to  get  freight  here.  This  is  too  long  a 
time  for  perishable  products  and  there  is  no  advantage  in 
sending  by  express  as  the  rates  are  too  high.  In  many  cases, 
too,  the  farmer  does  not  know  a  reliable  dealer  to  whom  to 
ship.  The  terminal  markets  with  their  auction  sales  will 
open  the  way  for  these  goods  to  reach  the  city.  As  soon  as 
they  are  in  operation  it  will  be  possible  for  the  railroads 
that  reach  out  through  the  nearby  territory  to  run  daily 
produce  trains  as  they  now  run  milk  trains,  to  which  farmers 
may  take  produce  in  any  quantities  to  be  sold  in  the  markets 
at  auction,  or  otherwise,  as  desired.  They  cannot  do  this 
now  as  there  are  no  means  of  disposing  of  the  goods  when 
they  reach  the  city,  unless  they  are  consigned  to  dealers. 

Your  Commission  has  prepared  plans  for  such  a  market 
as  has  been  described  to  be  constructed  in  the  Borough  of 
The  Bronx,  based  on  carefully  computed  estimates  of  present 
and  future  consumption  in  the  territory  such  a  market  will 
serve.  This  market  will  cover  28  acres  and  will  cost,  with 
the  land,  in  the  neighborhood  of  $10,000,000.  At  an  average 
annual  rental  of  35  cents  per  square  foot  of  rentable  space,  it 
will  return  seven  per  cent  on  the  investment — more  than 
sufficient  to  pay  all  the  charges  of  the  undertaking.  Rental 
rates  in  present  public  and  private  markets  are  much  higher 
and  the  facilities  offered  much  less.  The  plans  include  a 
freight  yard  with  ample  unloading  platforms;  broad  drive- 
ways for  trucks,  so  arranged  that  incoming  and  outgoing 
traffic  will  not  conflict;  selling  and  storage  space;  auction 
rooms;  power  house;  retail  market;  and  ample  waterfront 
facilities. 

Discuss  this  plan  from  the  standpoint  of  Weather- 
head  &  Company,  a  Maryland  firm  that  ships  fresh 
tomatoes  to  New  York  and  other  markets  in  car  lots. 


WHOLESAXE  TRADE  129 

97.  California  Fruit  Growers'  Association — 

Applicability  of  Plan  to  Apple  Growing  in 

New  England 

The  California  Fruit  Growers'  Exchange  is  a 
cooperative  association  organized  in  1905  as  an  expan- 
sion of  smaller  associations  of  similar  character.  This 
exchange  is  a  federation  through  district  exchanges  of 
local  cooperative  fruit  growers'  associations. 

Some  of  the  main  points  in  the  organization  of  the 
exchange  are  indicated  by  the  following  quotation  i^ 

The  general  purpose  for  which  the  Exchange  is  insti- 
tuted is  to  furnish  the  facilities  and  agencies  through  which 
the  citrus  fruits  and  their  by-products  of  its  members  and 
growers  represented  by  them  may  be  marketed  and  dis- 
tributed upon  a  uniform  plan  and  in  such  manner  as  to 
bring  about  a  standard  of  quality,  a  more  uniform  distri- 
bution and  a  larger  consumption  thereof  in  the  markets  of 
the  United  States  and  in  other  places.  In  order  to  make 
such  facilities  and  agencies  available  to  the  grower,  the  plan 
of  the  Exchange  includes  the  organization  of  the  growers 
into  "Local  Associations"  and  the  affiliation  of  those  local 
associations  into  "District  Exchanges." 

This  Exchange  will  have  as  many  members  as  there  are 
District  Exchanges  under  contract,  as  such,  with  this 
Exchange.  Each  District  Exchange  will  nominate  some 
person  to  act  for  it  as  its  member  in  this  Exchange.  This 
Exchange  will  have  as  many  directors  as  it  has  District 
Exchange  members,  so  that  each  member  thus  nominated 
by  the  District  Exchange  will  also  be  a  director  of  this 
Exchange. 

Each  District  Exchange  may  at  will,  and  as  often  as  it 
desires,  change  its  member  representative  in  this  Exchange. 
Upon  the  certification  of  a  new  representative  to  the  Board 
of  directors  of  this  Exchange,  the  membership  of  the  former 
representative  of  such  District  Exchange  shall  absolutely 
cease  and  terminate.     Such  new  representative  shall  there, 

^  Articles  of  Incorporation  and  By-Laws  of  California  Fruit  Growers' 
Exchange,  Article  XII,  pp.  11-12.  Other  references  on  cooperative 
marketing  arc  the  following:  G.  Harold  Powell,  Cooperation  in  Agri- 
culture. F.  W.  Powell,  "Cooperative  Marketing  of  California  Fresh 
Fruit,"  Quarterly  Journal  of  Economics,  P'ebruary,  1010.  California 
Fruit  Growers'  Exchange,  Annual  Reports.  B.  11.  Ilibbard,  Agricul- 
tural Cooperation,  Agricultural  Experiment  Station  of  the  University  of 
WiscoTisin,  Bulletin  238.  O.  B.  Jesness  and  W.  H.  Kerr,  "Cooperative 
Purcha.sing  and  Marketing  Organizations  among  Farmers,"  United 
States  Department  of  Agrictdture,  Bidletin  No.  647.  W.  H.  Kerr  and 
G.  A.  Nahstoll,  "Cooix'rative  Organization  liusine.s.s  Methods,"  United 
States  Department  of  Agriculture,  Bulletin  No.  178. 


130  MARKETING  PROBLEMS 

upon  be  elected  by  this  Exchange  as  one  of  its  directors  in 
place  of  the  former  member. 

This  Exchange  shall  issue  a  certificate  of  membership  to 
each  member,  but  the  said  membership  shall  not,  nor  shall 
the  said  certificate  thereof,  be  assigned  by  said  member  to 
any  other  person,  and  the  assignee  thereof  shall  not  be 
entitled  to  membership  in  the  Exchange  or  to  any  property 
rights  or  interests  therein,  nor  shall  a  purchaser  at  execu- 
tion sale,  or  any  other  person  who  may  succeed  by  opera- 
tion of  law  or  otherwise  to  the  property  interests  of  a  mem- 
ber, be  entitled  to  membership  or  become  a  member  of  the 
Exchange  by  virtue  of  such  transfer.  The  board  of  direc- 
tors may,  however,  by  motion  duly  adopted  by  it,  consent 
to  such  assignment  and  transfer  and  to  the  acceptance  of 
the  assignee  or  transferee  as  a  member  of  this  Exchange, 
but  it  is  expressly  understood  and  agreed  between  all  of 
the  members  that  no  membership  shall  be  transferred  or  any 
membership  certificate  assigned  unless  with  the  consent  of 
the  board  of  directors  of  this  Exchange  first  had  and  received. 
However,  when  a  District  Exchange  desires  to  change  its 
member  representative  in  this  Exchange  from  one  person  to 
another,  the  board  of  directors  of  this  Exchange  shall  recog- 
nize the  transfer  and  assignment  of  such  membership  and 
issue  a  new  membership  certificate  to  such  new  representa- 
tive. The  manner  in  which  the  District  Exchange  may 
indicate  that  it  desires  to  change  its  representative  as  well  as 
the  method  by  which  any  change  of  such  representative  is 
to  be  brought  about,  shall  be  determined  by  the  board  of 
directors  of  this  Exchange  by  resolution  entered  upon  its 
minutes. 

No  person  shall  be  a  member  of  this  Exchange  unless  he 
and  the  District  Exchange  which  he  represents  markets  all 
of  the  citrus  fruits  which  he  and  it  has  to  market  or  dispose 
of  through  the  facilities  and  agencies  afforded  by  this 
Exchange,  and  if  any  member  or  District  Exchange  shall 
cease,  fail,  neglect  or  refuse  for  any  reason  whatsoever  to 
market  the  whole  of  such  citrus  fruits  through  this  Exchange, 
then  in  that  event  the  membership  of  such  member  and  of 
such  District  Exchange  in  this  Exchange,  and  in  its  property, 
shall  ipso  facto  cease  and  terminate,  and  the  membership 
certificate  of  such  member  and  his  membership  in  this 
Exchange,  and  all  of  the  right,  title  and  interest  of  such 
member  and  of  such  District  Exchange  therein,  shall  be 
thereby  cancelled,  and  such  member  shall  not  nor  shall  such 
District  Exchange  be  entitled  to  any  appraisement  or 
interest  in  the  property  or  good  will  of  the  Exchange. 

Each  District  Exchange  agrees  that  it  will  require  each 
of  the  Local  Associations  composing  its  membership  to 
enter  into  uniform  contracts  with  it  in  such  manner  and 
form  as  may  be  prescribed  by  the  board  of  directors  of  this 


WHOLESALE  TRADE  131 

Exchange,  which  contracts  will  require  each  Local  Associa- 
tion to  market  all  of  the  citrus  fruit  which  it  has  to  market 
or  dispose  of  through  this  Exchange  and  said  District 
Exchange. 

The  voting  power  and  the  property  rights  and  interests 
of  the  members  of  this  Exchange  shall  be  equal. 

The  Exchange  shall  have  power  from  time  to  time  to 
admit  additional  members  to  its  organization  whenever 
there  shall  be  in  its  opinion  sufficient  reason  to  make  an 
additional  District  Exchange  advisable,  which  new  member 
(and  the  District  Exchange  which  such  member  represents) 
shall  be  entitled  to  vote  and  to  contribute  to  and  share  in 
the  property  of  the  Exchange  with  the  former  members,  in 
accordance  with  the  general  rule  herein  stated  and  upon 
such  terms  as  may  be  prescribed  upon  the  admission  of 
any  new  member,  it  being  the  purpose  of  this  Exchange  that 
its  facilities  be  available  all  times  and  upon  equal  terms  to 
all  growers  of  citrus  fruits,  provided  only  that  such  growers 
shall  have  first  provided  themselves  with  proper  local 
association  and  district  exchange  facilities. 

The  members  of  the  local  associations  aflfiliated  with 
the  exchange  are  fruit  growers.  Each  local  association, 
which  has  100  or  more  members,  assembles  the  fruit  in 
its  packing  house,  grades  the  fruit,  packs  it,  and  pre- 
pares it  for  shipment.  Some  of  the  associations  pick 
the  fruit  from  the  trees,  and  some  prune  and  fumigate 
the  trees  for  their  members.  It  is  a  common  practice 
for  each  of  the  local  associations  to  pool  the  shipments 
of  its  members,  the  fruit  to  be  sold  without  maintaining 
the  identity  of  the  shipments  of  each  individual  grower, 
the  proceeds  from  the  sale  being  divided  pro  rata. 
Such  pooling  is  commonly  done  on  a  monthly  basis. 

The  membership  in  the  local  associations  is  volun- 
tary and  only  for  one  year.  Every  shipper  reserves  the 
right  to  regulate  and  control  his  own  shipments,  develop 
his  own  brands,  and  use  his  own  judgment  as  to  how 
and  when  it  shall  be  shipped,  to  which  markets,  and 
what  prices  he  will  accept.  As  a  matter  of  fact,  how- 
ever, the  grower  is  largely  influenced  by  the  advice  of 
the  central  exchange. 

The  local  associations  are  grouped  into  twenty  dis- 
trict exchanges  which  act  as  clearing  houses.  These 
district  exchanges  keep  records  of  shii)ments  and  des- 
tinations and   obtain  through   the   central  exchange 


132  MARKETING  PROBLEMS 

reports  concerning  market  conditions.  Through  the 
central  exchange  instructions  are  issued  regarding 
prices  and  destinations  and  for  the  diversion  of  cars 
and  trains  in  transit  in  order  that  the  fruit  may  be 
sent  to  the  markets  that  are  most  favorable. *  Although 
only  a  small  percentage  of  the  total  shipments  are 
diverted  in  transit,  these  diversions  preserve  the  balance 
of  the  market. 

The  receipts  from  sales  of  fruits  are  paid  by  the 
central  exchange  through  the  district  exchanges  to  the 
local  exchanges.  The  district  exchanges  are  operated 
on  a  non-profit  plan.  The  California  Fruit  Growers' 
Exchange,  or  central  exchange,  is  a  federation  of  these 
district  exchanges.  In  1919,  the  number  of  individual 
growers  affiliated  with  the  exchange  was  over  10,000. 
In  1918-19,  72.3%  of  the  total  shipments  of  citrus 
fruits  from  California  was  shipped  through  the  exchange. 

^The  following  description  of  methods  of  diverting  shipments  is 
^ven  by  F.  Andrews,  "Reduction  of  Waste  in  Marketing,"  Year  Book 
of  U.  S.  DepaHment  of  Agriculture,  1911,  pp.  165-176 :  "When  a  member 
shipped  a  car  of  produce,  he  turned  the  bill  of  lading  over  to  the  man- 
ager of  the  organization  and  allowed  him  to  direct  the  movement  of 
the  car  to  market.  The  object  of  having  one  central  authority  select 
the  markets  was  to  prevent  sending  an  over-supply  to  any  one  place. 
On  receiving  the  bill  of  lading,  a  record  of  the  car  was  made  on  a  card 
in  the  office  of  the  organization  and  the  card  filed  in  its  place  in  a 
drawer.  This  drawer  was  divided  into  several  rows  of  compartments; 
each  row  had  31  compartments,  and  there  was  one  row  for  each  prin- 
cipal market  in  the  United  States.  The  31  compartments  represented 
each  day  of  a  month.  When  a  card  was  filed,  its  location  was  deter- 
mined by  the  destination  named  in  the  bill  of  lading  and  by  the  day 
of  the  month  on  which  the  consignment  was  due  at  the  destination. 
For  instance,  a  car  load  of  cherries  shipped  to  New  York  from  a  point 
in  the  Sacramento  Valley  on  May  27th  would  be  represented  by  a  card 
filed  in  the  New  York  row  of  the  drawer  and  in  the  compartment  No.  7, 
if  the  consignment  would  be  due  in  New  York  on  June  7th.  The 
arrangement  of  these  cards  showed  at  a  glance  the  intended  distribu- 
tion of  this  association's  shipments  among  the  different  markets,  and 
when  too  many  consignments  of  a  given  kind  of  fruit  were  on  the  way 
to  a  given  market  the  grouping  together  of  several  cards  in  one  box 
served  as  a  warning  that  the  destination  of  one  or  more  cars  should  be 
changed.  The  drawer  showed  only  such  fruit  as  was  shipped  by  the 
association.  News  of  other  shipments  and  of  their  probable  time  of 
arrival  at  destination  was  secured,  to  some  extent,  by  the  association. 
When  it  became  known  that  a  certain  market  was  about  to  receive  an 
oversupply  of  a  given  fruit,  one  or  more  of  the  shippers  who  had  con- 
signed to  that  market  would  be  notified  by  the  association  manager, 
so  that  they  might  select  another  city  to  which  to  divert  their  consign- 
ments. In  case  they  should  refuse  to  make  such  a  selection,  the  rules 
of  the  association  gave  the  manager  the  right  to  divert  the  shipments 
himself." 


WHOLESALE  TRADE  133 

The  proportion  of  fruit  shipped  through  this  exchange 
has  been  increasing  steadily. 

There  are  several  significant  reasons  for  the  develop- 
ment of  this  cooperative  organization.  In  the  first 
place,  at  the  time  the  movement  gained  headway  most 
rapidly,  there  was  dissatisfaction  among  the  growers 
with  their  relations  with  buyers,  commission  mer- 
chants and  others  to  whom  their  fruit  was  sold.  Their 
product  was  increasing  and  prices  were  falling.  Gluts 
frequently  occurred  in  the  markets  in  which  the  fruit 
was  sold.  The  blame  for  low  prices  and  losses  was 
commonly  placed  upon  the  middlemen.  The  growers 
found  that  they  could  obtain  lower  freight  rates,  faster 
time  in  transit,  and  less  damage  to  their  fruit  if  they 
were  in  a  position  to  contract  w^ith  the  railroad  com- 
panies for  the  regular  shipment  of  train  loads.  The 
growers  also  had  been  gaining  experience  in  united 
action  through  their  irrigation  projects  and  through 
the  need  of  common  effort  in  the  protection  of  their 
orchards.  The  citrus  fruit  growing  industry  in 
California  is  specialized  and  requires  large  capital. 

The  chief  markets  for  the  California  citrus  fruits  are 
the  cities  in  the  Middle  West  and  in  the  eastern  part 
of  the  United  States.  The  fruit  is  shipped  in  train 
loads  on  regular  schedules.  Shipments  are  made  daily 
throughout  the  year.  Refrigerator  cars  are  used,  and 
pre-cooling  stations  have  been  established  in  order  to 
facihtate  the  proper  regulation  of  temperature  for 
shipments.  The  central  exchange  acts  as  a  clearing 
house  for  all  the  district  exchanges.  It  has  represen- 
tatives in  all  the  important  markets  in  the  country 
from  whom  advice  is  constantly  received  regarding 
market  conditions  and  prices.  The  fruit  is  sold  for 
cash,  and  payment  is  made  through  the  central 
exchange.  The  exchange  also  collects  claims  for 
damage  and  loss  in  transit. 

The  California  Fruit  Growers'  Exchange  has  devel- 
oped the  Sunkist  brand  of  citrus  fruits.  Only  such 
fruit  as  is  of  first  quality  is  permitted  to  bear  this 
brand.  Shipments  that  are  not  up  to  this  standard 
are  sold  unbranded.     This  is  one  of  the  chief  means 


134  MARKETING  PROBLEMS 

that  the  exchange  is  using  for  developing  the  demand 
for  the  products  of  its  members. 

The  expenses  of  the  exchange  were  stated  in  the 
annual  report  of  the  general  manager  for  the  year 
closing  August  31,  1919,  as  follows: 

The  sales  service  of  the  Exchange  cost  an  average  of 
4.26  cents  per  box  in  1918-19,  and  that  of  the  District 
Exchanges  averaged  .0094  cents  a  box,  making  a  total 
average  cost  for  the  Exchange  marketing  service  of  5.2 
cents  per  box,  or  1.04  per  cent  of  the  delivered  value.  In 
addition  there  was  invested  in  advertising,  2]/2  cents  a  box 
for  oranges  and  4  cents  a  box  for  lemons,  making  the  total 
sales  and  advertising  expense  1.62  per  cent  of  the  delivered 
value  of  the  fruit.  Due  to  the  increased  volume  of  business 
handled  the  Exchange  selling  cost,  including  advertising,  is 
lower  than  it  was  10  years  ago  and  lower  than  the  marketing 
cost  of  any  other  perishable  food  product  in  America. 

What  are  the  obstacles  to  the  formation  of  a  similar 
organization  among  the  apple  growers  of  New  England? 
How  could  these  obstacles  be  overcome? 


98.  Carolina  Potato  Exchange 

Discuss  critically  the  following  By-Laws  of  the 
Carolina  Potato  Exchange : 

Article  1.     Objects 
The  objects  for  which  this  corporation  is  formed  accord- 
ing to  the  articles  of  incorporation  are  as  follows: 

1.  To  act  as  agent  for  its  members  and  others  in  market- 
ing all  products  of  N.  E.  North  Carolina  and  elsewhere;  and 
to  buy  and  sell  such  products,  both  fresh  and  manufactured. 

2.  To  establish  and  maintain  uniformly  high  grades  and 
packs  of  all  products  handled  by  it  and  to  build  up  a  repu- 
tation in  all  markets  for  goods  of  the  highest  quality, 
uniformly  graded  and  properly  packed. 


WHOLESALE  TRADE  135 

3.  To  purchase  supplies  for  its  members  when  advisable. 

4.  To  erect,  operate  and  maintain,  as  occasion  demands, 
plants  for  production,  preservation,  handling  and  sale  of 
fresh  and  manufactured  products. 

5.  To  secure  the  greatest  good  to  all  its  members  and  to 
that  end  to  engage,  when  warranted,  in  such  otherwise  and 
advantageous  undertakings  as  shall  in  no  way  interfere 
with  its  main  business  of  marketing  its  members'  products. 

Article  2,     Membership 

Section  1.  The  membership  of  the  association  shall  be 
confined  as  far  as  possible  to  actual  growers  and  agricultural 
land-owners.  No  one  shall  become  a  member  of  the 
exchange  whose  interests  are  antagonistic  to  those  of  the 
growers. 

Sec.  2.  All  shares  must,  before  issue,  be  registered  on 
the  books  of  the  association,  by  being  surrendered,  and  new 
ones  issued  in  the  name  of  the  purchaser,  who,  by  accept- 
ance thereof,  agrees  to  all  the  by-laws  and  rules  of  the 
association,  including  also  all  amendments  that  may  be 
legally  adopted,  and  thereby  shall  become  a  member  of  the 
company.  No  shares  can  be  transferred  until  all  claims  of 
this  company  against  the  owner  of  such  shares  have  been  paid. 

Sec.  3.  If  any  member  of  the  association  desires  to  dis- 
pose of  his  share  or  shares,  he  shall  first  offer  to  sell  the 
same  to  the  company  at  market  value;  if  the  company 
decline  to  purchase,  the  member  may  find  a  purchaser 
acceptable  to  the  company  and  have  the  same  transferred 
to  said  purchaser  on  the  books  of  the  company  in  accord- 
ance with  the  rules.  If  a  member  removes  from  the  terri- 
tory and  ceases  to  be  a  patron  of  the  association  and  estab- 
lishes a  residence  elsewhere,  the  board  of  directors  shall 
purchase  the  share  or  shares  owned  by  the  said  non-resident 
member.  Sections  two  (2)  and  three  (3)  of  this  article  shall 
be  printed  on  each  and  every  certificate  of  stock  issued  by 
the  company. 

Sec.  4.  New  members  may  be  admitted  by  a  majority 
vote  of  the  association. 

Sec.  5.  Each  membcT  shall  be  entitled  to  one  vote  onlJ^ 

Sec.  6.  No  member  shall  be  entitled  to  own  more  than 
ten  per  cent  of  the  capital  stock. 

Sec.  7.  Any  member  who  desires  to  speculate  in  buying 
potatoes  or  any  other  products  handled  by  this  exchange 
must  first  withdraw  from  membership. 

Article  3.     Board  of  Directors 

Section  1.  The  board  of  directors  shall  consist  of  seven 
members  provided  that  each  local  branch  is  represented  on 
the  Board. 

Sec.  2.  They  shall  be  elected  by  and  from  among  the 
stockholders  at  the  annual  meeting  and  shall  serve  until 


136  MARKETING  PROBLEMS 

their  successors  are  duly  elected  and  qualified.  Of  the 
directors  elected  upon  completion  of  the  organization,  two 
shall  serve  one  year,  two  two  years,  and  three  three  years. 
The  regular  term  of  office  of  the  directors  shall  he  three 
years.  If  vacancies  occur  in  the  board  the  same  shall  be 
filled  by  the  remaining  directors  until  the  next  annual 
election. 

Immediately  after  the  election  of  the  directors  the  newly 
elected  board  of  directors  shall  meet  for  organization  and 
the  election  of  officers. 

Sec.  3.  The  board  of  directors  or  executive  committee 
appointed  by  them  shall  have  the  management  and  control 
of  the  business  of  the  corporation  and  shall  employ  such 
agents  as  they  may  deem  advisable  and  fix  the  rate  of 
compensation  of  all  officers  and  employees. 

Sec.  4.  The  board  of  directors  shall  audit  the  accounts 
of  the  association  at  least  once  every  quarter  and  once  every 
week  during  shipping  season. 

Sec.  5.  The  board  of  directors  shall  meet  on  the  first 
Saturday  of  each  month  and  be  subject  to  a  call  for  special 
meetings  at  such  times  as  the  president  or  secretary  may 
deem  necessary. 

Sec.  6.  A  majority  of  the  directors  shall  constitute  a 
quorum  of  the  board. 

Sec.  7.  No  member  of  the  board  of  directors  shall  be 
allowed  to  vote  on  any  question  in  which  he  may  have  any 
interest  conflicting  with  that  of  the  association. 

Article  4.     Officers. 
*      *       *      * 

Sec.  7.  A  general  manager  shall  be  appointed  by  the 
Board  of  Directors  for  the  shipping  season,  or  longer  if 
necessary.  He  shall  have  full  charge  of  inspection,  dis- 
tribution and  sales  of  all  products;  and  it  shall  be  his  duty 
to  attend  to  all  collections  and  claims  and  payment  of  net 
returns  to  growers  and  to  keep  careful  records  and  accurate 
accounts  of  all  transactions  in  his  department  and  during 
shipping  season  to  take  care  of  the  funds  of  the  company, 
receive  and  apportion  funds  and,  if  necessary,  write  checks 
provided  that  during  the  first  shipping  season  all  checks 
against  the  Exchange's  account  shall  be  signed  by  the 
manager  and  countersigned  by  the  cashier  of  the  First 
National  Bank  of  Elizabeth  City  where  the  funds  of  the 
Exchange  are  kept;  and  this  method  of  having  checks 
countersigned  by  an  officer  of  the  bank  in  which  the  exchange 
is  keeping  its  funds  shall  be  continued  as  long  as  necessary. 

It  shall  be  the  duty  of  the  manager  to  keep  neat  and 
systematic  records  which  shall  at  all  times  be  open  to  the 
inspection  of  the  Board  of  Directors,  Auditing  Committee, 
officers  or  members  of  the  exchange.     He  shall  make  regular 


WHOLESALE  TRADE  137 

weekly  reports  to  the  Board  of  Directors  and  shall  give  such 
bond  for  the  faithful  performance  of  his  duties  as  the  Board 
of  Directors  may  deem  advisable.  He  shall  employ  what- 
ever assistance  may  be  necessary  to  perform  the  duties  of 
his  office. 

The  manager  shall  not  be  permitted  to  buy  for  shipment 
or  sale  on  his  own  account  any  of  the  products  handled  by 
the  exchange,  and  the  proof  of  such  speculation  shall  be 
deemed  sufficient  cause  for  his  removal  from  office. 

Sec.  8.  The  offices  of  Treasurer  and  Manager  may  be 
combined. 

Sec.  9.  Any  director  or  officer  who  desires  to  speculate 
in  buying  potatoes  or  any  other  product  handled  by  this 
exchange  must  first  resign  his  position  in  the  exchange. 
The  position  of  any  director  or  officer  who  does  buy  such 
products  on  his  own  account  shall  be  declared  vacant  at 
the  first  meeting  of  the  Board  of  Directors. 
Article  5.     Capital  Stock. 

Section  1.  The  authorized  capital  stock  of  this  asso- 
ciation shall  be  nine  hundred  (900)  dollars  which  shall  be 
divided  into  180  shares  of  five  (5)  dollars  each,  which  shall 
be  paid  in  at  such  times,  and  in  such  amounts  as  the  board 
of  directors  may  determine  and  may  be  paid  either  in  cash, 
property,  labor  or  securities,  as  the  board  of  directors  may 
determine. 

*      *       *      * 

Article  6.     Local  Branches. 
Section  1.  Local  Branches  may  be  established  wherever 
consistent  with  the  objects  of  the  exchange.     Each  local 
branch  may  elect  at  least  one  director  to  represent  it  on  the 
General  Board  of  Directors. 

Article  7.     Grades  and  Inspection. 

Section  L  Since  one  of  the  primary  objects  of  the 
exchange  is  to  establish  and  maintain  on  all  markets  a  repu- 
tation for  high  quality  and  correct  grades  of  its  potatoes  and 
other  products,  every  member  will  be  required  to  grade  all 
his  products  offered  for  sale  through  the  exchange  strictly 
in  accordance  with  the  grades  and  specifications  adopted  by 
the  Board  of  Directors  and  the  General  Manager. 

Sec.  2.  In  order  to  maintain  the  necessary  standards  of 
grades  and  packs,  a  general  inspector  and  assistant  and  local 
inspectors  and  agents,  if  required,  shall  be  employed  by  the 
general  manager  subject  to  the  approval  of  the  board  of 
directors.  A  local  inspector  and  a  local  agent  shall  be 
employed  at  every  loading  point  where  business  justifies. 

Sec.  3.  It  shall  be  the  duty  of  the  general  inspector  to 
see  that  proper  and  uniform  standards  of  quality  are  main- 
tained in  grade  and  pack  of  all  products  marketed  by  the 
exchange.     In  the  performance  of  this  duty,  he  shall  exercise 


138  MARKETING  PROBLEMS 

complete  supervision  and  control  over  the  grading,  packing, 
inspection  and  branding  of  such  products  and  shall  direct 
and  supervise  the  work  of  the  assistant  inspectors  and  the 
local  inspectors  and  agents.  He  shall  have  authority  to 
transfer  local  inspectors  when  advisable.  He  shall  have 
authority  to  suspend  local  inspectors  wilfully  and  persist- 
ently negligent  of  the  duties  of  their  offices  and  to  appoint 
temporary  successors  pending  the  next  meeting  of  the  board 
of  directors.  He  shall  visit  local  loading  points  as  often  as 
possible  and  whenever  necessary.  He  shall  report  daily  to 
the  general  manager  and  shall  perform  such  other  duties 
as  the  general  manager  or  board  of  directors  may  require. 

Sec.  4.  Each  local  agent  or  inspector  shall  be  required 
to  maintain  the  standards  of  the  exchange  as  to  quality, 
uniformity  and  pack  of  goods  and  all  other  essentials.  He 
shall  see  that  all  goods  leaving  his  loading  point  are  cor- 
rectly branded  and  plainly  marked  with  the  number  or 
initials  of  the  shipper  as  well  as  the  brand  of  the  exchange 
and  grade  of  the  product.  He  shall  be  required  to  furnish 
the  general  manager  regular  daily  reports  by  'phone  or 
wire  of  names  of  all  exchange  members  loading  that  day 
at  his  point  as  well  as  the  exact  number,  kind  and  quality 
of  packages  loaded  by  each  grower.  So  far  as  possible  he 
shall  keep  the  manager  informed  as  to  the  amount  and 
quality  of  products  available  for  the  next  day's  and  future 
shipments.  He  shall  receive,  inspect,  properly  brand  and 
ship  or  reject  all  exchange  products  at  his  point.  He  shall 
furnish  each  grower  a  receipt  for  products  received  from  that 
grower.  He  shall  report  any  and  all  violations  by  members 
of  the  By-Laws  and  rules  and  regulations  of  the  exchange. 

Sec.  5.  Any  general,  assistant  or  local  inspector  or  local 
agent  who  buys  on  his  own  account  for  sale  or  shipment 
any  of  the  products  handled  by  the  exchange  shall  be 
discharged. 

Article  8.     Sale  of  Products. 

Section  1.  This  organization  shall  have  the  exclusive  and 
unqualified  power  to  market  those  products  of  its  members 
which  the  association  was  formed  to  sell  or  consign,  pro- 
vided: If  a  competitor  raises  the  price  of  farm  products 
above  that  which  the  association  can  obtain  any  stockholder 
may  be  authorized  by  the  manager  to  sell  his  products 
through  an  outside  agency  providing  he  pays  his  proper 
proportion  of  the  running  expenses  to  the  association.  This 
sum  shall  be  five  per  cent  of  the  value  of  products  so  sold 
to  a  competing  concern.  Any  member  who  violates  the 
provisions  of  this  section  shall  forfeit  his  stock  and  rights  of 
membership. 

Sec.  2.  The  commission  on  all  F.  O.  B.  sales  whether 
local  or  by  wire  shall  be  five  per  cent.     On  consignments  the 


WHOLESALE  TRADE  ISO 

usual  fee  of  commission  merchants  will  be  deducted  from 
the  gross  price.  Three  per  cent  of  the  gross  price  included 
in  the  above  charge  shall  be  refunded  to  the  exchange  to 
pay  its  expenses. 

Article  9.  Pooling  Prices 
At  the  close  of  each  day's  sales  the  prices  of  all  goods 
sold  F.  O.  B.  loading  point  and  of  those  taken  for  the 
account  of  the  exchange  shall  be  averaged  so  that  each 
member  will  receive  the  same  price  for  the  same  grade  and 
value  of  goods  sold  that  day.  Returns  to  members  shall 
be  made  daily. 

Article  10.  Apportionment  of  Earnings 
Section  I.  The  directors,  subject  to  revisions  by  the 
association  at  any  general  or  special  meeting,  shall  apportion 
the  earnings  by  first  paying  dividends  on  the  paid-up  capital 
stock  not  exceeding  six  per  cent  per  annum.  Then  they 
should  set  aside  not  less  than  ten  per  cent  of  the  net  profits 
for  a  reserve  fund  until  an  amount  has  accumulated  in 
said  reserve  fund  equal  to  thirty  per  cent  of  the  paid-up 
capital  stock.  Then  the  remainder  of  said  net  profits  should 
be  distributed  by  uniform  dividend  upon  the  amount  of 
purchases  made  by  shareholders  and  upon  the  wages  and 
salaries  of  employees,  and  one-half  of  such  uniform  dividend 
should  be  paid  non-shareholders  on  the  amount  of  their 
purchases.  (This  half-rate  dividend  may  be  credited  to  the 
account  of  such  non-shareholders  on  account  of  capital  stock 
of  the  association.) 

Sec.  2.  In  selling  agencies  such  as  fruit,  truck,  peanut 
and  cotton  growers  associations,  and  in  productive  associa- 
tions such  as  creameries,  canneries,  warehouses,  factories, 
and  the  like  dividends  should  be  prorated  according  to  the 
raw  material  delivered  instead  of  on  goods  purchased.  In 
case  the  association  is  both  a  selling  and  a  productive  con- 
cern, the  dividends  may  be  on  both  raw  material  delivered 
and  on  goods  purchased  by  patrons.  Provided  that  for  the 
first  year  all  surplus  profits,  if  there  be  any  after  pajTnent 
of  expenses,  shall  be  set  aside  for  a  reserve  fund. 


140  MARKETING  PROBLEMS 

99.  Public  Interest  in  Cold  Storage  Regulations 

Large  quantities  of  perishable  food  products  are 
placed  regularly  in  cold  storage.  The  cold  storage 
plants  are  warehouses  in  which  merchandise  is  stored 
for  a  fee.  The  proprietors  of  commercial  cold  storage 
warehouses  are  not  owners  of  the  goods  stored  in  the 
warehouses.  Some  of  the  kinds  of  merchandise  for 
which  cold  storage  is  most  extensively  used  are  eggs, 
butter,  cheese,  apples,  meat,  poultry,  and  fish. 

Eggs.  Although  substantial  quantities  of  eggs  are 
produced  in  practically  all  parts  of  the  United  States, 
the  large  urban  markets  in  the  East  and  Middle  West 
receive  a  large  portion  of  their  supply  from  the  surplus 
production  in  the  states  of  Ohio,  Indiana,  Illinois, 
Iowa,  Minnesota,  Nebraska,  Kansas,  Missouri,  Texas, 
Tennessee,  and  Kentucky. i  The  heaviest  producing 
season  in  these  states  is  the  spring  months,  beginning 
in  March. 

Eggs  are  still  primarily  a  by-product  of  general 
farming  with  the  result  that  in  the  initial  stages  of  the 
marketing  process  there  frequently  is  lack  of  proper 
care.  2  Farmers  generally  take  their  eggs  to  market 
incidentally  on  a  trip  to  town  for  other  purposes. 
The  eggs  are  commonly  sold  by  the  farmers  to  country 
merchants,  sometimes  to  peddlers.  The  country  mer- 
chant, who  operates  a  general  merchandise  store,  often- 
times takes  eggs  in  exchange  for  merchandise.  The 
country  merchant,  or  local  peddler,  in  these  middle 
western  states  usually  sells  the  eggs  that  he  has  pur- 
chased to  a  packer  who  operates  a  central  shipping 
plant  or  packing  house.  The  packer  makes  his  ship- 
ments in  car  lots.  It  is  now  the  usual  practice  for  the 
proprietor  of  the  central  shipping  plant  to  candle  the 
eggs  that  he  purchases  in  order  to  classify  them  accord- 
ing to  quality.  After  the  eggs  reach  the  central 
shipping  plant,  they  are  kept  in  cold  storage  and 
shipped  to  other  markets  in  refrigerator  cars.  They 
are  sold  by  the  packer  to  merchants  in  the  large  cities, 

^  United  States  Department  of  Agriculture,  Year  Book,  1910,  p.  462. 
2  Ibid.,  pp.  466-468. 


WHOLESALE  TRADE 


141 


such  as  Chicago,  New  York,  and  Boston,  where  large 
quantities  of  the  eggs  are  placed  in  cold  storage. 

The  quantity  of  eggs  in  cold  storage  during  the 
season  1917-18  was  as  follows  :i 


COLD    STORAGE   HOLDINGS   OF   CASE   EGGS    IN   THE 
UNITED    STATES,    1917-18 


Date 

Storages 
Reporting 

Ciises  of 
Eggs 

April  1 

May  1 

May  15 

June  1 

June  15 

July  1 

Aup;ust  1 

September  1 

October  1 

November  1 

November  15 

293 
313 
332 
324 
311 
354 
326 
360 
392 
407 
388 
405 
411 
414 
408 

164.518 
1,818,703 
3,221,970 
4,481,827 
5,661,947 
6,10:),570 
6,194,173 
5,893,404 
5,592,897 
4,429,888 
3,653,538 

December  1 

December  15 

2,799,012 
1,618,181 

January  1 

February  1 

988,228 
191,520 

The  seasonal  changes  in  the  quantity  of  eggs  in 
cold  storage  are  clearly  indicated  by  these  statistics. 

The  following  statements  regarding  the  relation  of 
storage  to  prices  are  quoted  from  a  bulletin  of  the 
United  States  Department  of  Agriculture  i^ 

The  average  selling  price  of  storage  eggs  in  1917-18  was 
37.4  cents  per  dozen  and  the  total  sales  value  $74,118,668. 
This  shows  a  gross  profit  of  1.8  cents  per  dozen  or  $3,558,136. 
If  allowance  of  4  cents  per  dozen  is  made  as  covering  storage, 
insurance  and  shrinkage  for  the  season  (the  figure  commonly 
accepted  in  the  trade),  there  would  appear  to  have  been 
a  net  loss  of  2.2  cents  per  dozen,  or  $4,305,117,  aside  from 
the  interest  on  the  investment. 

The  holdings  of  the  season  191G-1917  proved  a  very 
profitable  investment.  The  6,060,129  cases  hold  that  season 
were  stored  at  an  average  price  of  23.44  cents,  a  total  cost 

»  "Cold  Storage  Reports,  Sea.son  1917-1918,"  U.  S.  Department  of 
Agriculture,  Bulletin  No.  776,  p.  20. 
=  Ibid,  pp.  26-28. 


142  MARKETING  PROBLEMS 

of  $42,610,1''^4,  and  sold  at  an  average  price  of  32.98  cents, 

or  $59,956,025,  a  gross  profit  of  9.54  cents  or  $17,345,871. 

The  actual  profit  after  deducting  4  cents  a  dozen  for  storage, 

insurance  and  shrinkage,  amounted  to  5.54  cents  a  dozen, 

or  $10,073,716,  from  which  must  be  deducted  the  interest 

on  the  investment  to  secure  the  net  profit. 

In  the  season  of  1915-1916,  6,084,529  cases  were  placed 

in  cold  storage  at  an  average  price  of  20.82  cents  or  a  total 

cost  of  $38,003,968.     They  were  sold  at  23.41   cents,  or 

$42,740,045,  with  an  apparent  profit  of  2.59  cents  per  dozen, 

but  an  actual  net  loss  of  1.41  cents,  or  $2,565,358,  and 

interest,  if  an  allowance  of  4  cents  per  dozen  be  made  for 

storage,  insurance,  and  shrinkage. 

*      *      *      * 

According  to  the  prices  quoted  on  the  New  York  mar- 
ket, if  that  portion  of  the  public  which  purchased  the  cold 
storage  eggs  for  the  season  had  purchased  fresh  eggs  instead, 
the  6,602,711  cases  which  they  bought  for  $74,118,668  would 
have  cost  them  $99,593,511,  or  $25,474,843,  more  than  they 
paid  for  the  storage  stock.  While  it  is  true  that  many  people 
could  not  have  afforded  the  fresh  eggs  at  the  prices  quoted, 
and  that  the  consumption  would  have  been  reduced,  it  is 
also  true  that  the  increased  demand,  on  account  of  the 
smaller  supply  available,  had  there  been  no  storage  stock, 
would  no  doubt  have  sent  prices  much  higher. 

It  is  also  apparent  that,  lacking  storage  facilities,  the 
eggs  that  were  placed  in  cold  storage  would  otherwise  have 
been  disposed  of  through  consumptive  channels  during  the 
season  of  production  and  probably  would  have  caused  a 
substantial  reduction  in  the  prices  at  that  time.  There  is, 
of  course,  no  means  of  ascertaining  the  actual  reduction  that 
would  have  occurred,  but  it  is  probable  that  in  many  cases 
the  prices  would  not  have  covered  the  cost  of  production. 

Butter  A  As  in  the  egg  trade,  the  large  urban  mar- 
kets draw  their  supply  of  butter  from  the  dairy  dis- 
tricts which  produce  a  surplus  beyond  local  needs. 
The  following  statements  are  quoted  from  a  bulletin 
of  the  United  States  Department  of  Agriculture  i^ 

A  considerable  amount  of  butter  is  placed  in  cold 
storage  during  the  season  of  surplus  production,  which 
begins  about  April  1  and  extends  into  August,  when  the 
receipts  of  fresh  butter  on  the  markets  are  larger  than  the 
requirements  for  the  consuming  trade.     It  is  a  well-recog- 

'  An  analysis  of  the  relation  of  cold  storage  to  prices  of  butter  and 
cheese  is  given  by  Elma  B.  Carr,  Monthly  Labor  Renew,  January, 
1920,  pp.  100-117. 

2  U.  S.  Department  of  Agriculture,  Bulletin  No.  456,  "Marketing 
Creamery  Butter,"  pp.  28-30. 


WHOLESALE  TRADE  143 

nized  fact  that  storage  of  butter  is  an  economic  necessity, 
first,  as  a  means  of  conserving  its  quality,  and,  second,  as 
a  factor  in  equalizing  the  price  throughout  the  various 
seasons  of  the  year.  The  better  grades  of  butter  are  in 
greatest  demand  for  storage  purposes.  Many  distributors 
who  have  a  regular  established  trade  make  a  practice  of 
storing  butter  in  order  to  be  assured  of  a  supply  during  the 
winter  season.  Other  dealers  store  large  quantities  of  butter 
as  a  speculative  investment. 

The  principal  places  of  storage  in  the  eastern  United 
States  are  Chicago,  New  York,  Boston,  Philadelphia,  and 
Omaha.  Among  other  cities  at  which  considerable  quanti- 
ties are  stored  are  St.  Paul,  Duluth,  Buffalo,  Pittsburgh, 
St.  Louis,  Kansas  City,  New  Orleans,  and  Norfolk.  On  the 
Pacific  coast  San  Francisco,  Portland,  Seattle,  Spokane, 
Salt  Lake  City,  and  Los  Angeles  are  the  principal  points  of 
storage.  Owing  to  its  geographical  location,  which  permits 
easy  reshipment  to  the  East  or  South,  Chicago  is  the  greatest 
center  for  the  storage  of  butter.  Omaha  is  becoming  a  large 
storage  center  for  butter  made  by  the  centralizing  plants  in 
that  section.  A  temperature  of  zero  Fahrenheit  or  below 
usually  is  maintained  in  butter-storage  rooms. 

The  rates  for  storage  of  butter  vary  in  different  cities  and 
with  different  storages.  The  following  schedule  is  found  to 
prevail  with  many  cold-storage  companies: 

123/2  cents  per  hundredweight  per  month  for  less 

than  car  lots. 
10  cents  per  hundredweight  per  month  for  car  lots. 
25  cents  per  hundredweight  per  month  for  small  lots 
stored  for  30  days  or  less. 

The  customary  rate  with  small  storages  is  one-fourth  of 
a  cent  per  pound  per  month. 

Formerly  it  was  customary  for  storage  operators  to 
negotiate  loans  on  butter  through  banks,  but  now  many 
cold-storage  houses  handle  the  loans  themselves  and  hold 
the  warehouse  receipts  as  collateral  security.  The  usual 
interest  rate  charged  on  loans  is  6  per  cent.  The  charges 
for  insurance  range  from  $4  to  $15.50  per  SI, 000  valuation, 
depending  upon  the  construction,  location,  and  equipment 
of  the  building.  These  are  based  upon  a  yearly  period  and 
rebates  are  made  when  the  butter  is  carried  for  a  shorter 
time.  The  amount  loaned  on  butter  varies  from  GO  to  70 
per  cent  of  its  value.  It  is  often  convenient  for  butter  dis- 
tributors to  deal  directly  with  a  storage  company  in  obtain- 
ing loans  and  insurance,  and  storage  companies  acting  as 
agents  in  these  lines  facilitate  their  business  and  fill  their 
rooms.  They  can  also  handle  smaller  accounts  and  make 
larger  advances,  as  they  have  the  butter  in  custody. 

The  margins  on  storage  butter  depend  upon  a  number  of 
factors,  such  as  the  keeping  quality  of. the  butter,  the  mar- 


144  MARKETING  PROBLEMS 

ginal  difference  between  the  price  paid  and  the  market  value 
of  the  butter  when  it  is  removed  from  storage,  the  costs  of 
storage,  and  the  expense  of  handling  it.  It  is  customary  to 
estimate  the  carrying  charges  roughly  at  one-fourth  cent  per 
pound  per  month.  The  following  statement  illustrates  the 
approximate  costs  for  interest,  storage,  and  insurance: 
Interest  on  100  pounds  butter  at  28  cents  for 

six  months  at  6  per  cent $0.84 

Storage  on  100  pounds  butter  at  10  cents  per 

hundredweight  per  month  for  six  months.  .  .      .60 
Insurance  at  rate  of  42  cents  per  $100  for  six 

months 1 176 

Cost  per  100  pounds  for  6  months $1 .5576 

Cost  per  100  pounds  per  month 2596 

The  quantity  of  creamery  butter  held  in  storage 
during  the  season  1917-18  was  as  follows  :i 


Cold  storage  holdings  of  creamery  butter 
in  the  united  states,  1917-18 


Date 

Storages 
Reporting 

Pounds  of  Butter 
in  Storage 

June  1 

235 
254 
271 
241 
261 
294 
320 
357 
354 
337 
343 
357 
360 

8,436,017 

June  15 

22,581,838 

July  1 

46,631,533 

July  15 

64,525,601 

August  1 

84,101,347 

September  1 

98,683,757 

October  1 

98,749,922 

November  1 

98,886,972 

December  1 

77,219,724 

January  1 

46,956,949 

February  1 

22,249,328 

March  1 

18  034,428 

April  1 

14,581,614 

Cheese  The  largest  cheese  producing  districts  in 
the  country  by  far  are  Wisconsin  and  the  state  of  New 
York.  It  is  said  that  approximately  one-half  the 
cheese  of  the  United  States  is  made  in  Wisconsin.  ^ 

•  U.  S.  Department  of  Agriculture,  Bulletin  No.  776,  "Cold  Storage 
Reports,  Season  1917-18,  p.  8. 

2  B.  H.  Hibbard  and  Ashur  Hobson,  "Marketing  and  Prices  of 
Wisconsin  Cheese,"  Agricultural  Experiment  Station  of  the  University 
of  Wisconsin,  Bulletin  No.  251,  p.  3. 


WHOLESALE  TRADE 


145 


Practically  all  the  cheese  produced  in  Wisconsin  is 
made  in  factories.  Some  of  these  factories  are  owned 
and  operated  as  independent  business  units.  Others 
are  owned  and  operated  cooperatively  by  farmers. 
The  cheese  is  sold  from  the  factory  to  local  buyers, 
shipped  by  the  factory  on  consignment  to  large  mer- 
chants, or  sold  to  wholesale  grocers  and  other  merchants 
dealing  in  cheese  in  cities  in  various  parts  of  the 
country.* 

The  cold  storage  holdings  of  cheese  during  the 
season  1917-18  were  as  follows  :- 


COLD    STORAGE   HOLDINGS   OF   CHEESE    IN   THE 
UNITED    STATES,    1917-18 


Date 

Storages 
Reporting 

Pounds  of  Cheese 
in  Storage 

June  1 

July  1 

August  1 

September  1 

October  1 

November  1 

December  1 

January  1 

February  1 

March  1 

April  1 

May  1 

313 
292 
307 
323 
360 
411 
419 
410 
432 
448 
459 
455 

9,553,845 
25,884,240 
00,091,534 
74,300,651 
81,638,837 
84,380,977 
78,765,033 
68,791,566 
55,837,977 
47,726,437 
38,167,559 
24,218,143 

These  statistics  are  not  fully  typical  of  a  normal 
year,  because  the  decrease  in  holdings  during  the  last 
months  of  the  season  was  not  as  rapid  as  in  ordinary 
seasons.  This  was  due  in  part  at  least  to  the  com- 
paratively small  exports  of  cheese  during  that  year. 

From  the  standpoint  of  public  interest,  what  should 
be  the  fundamental  purpose  of  legislation  restricting 
the  time  that  perishable  merchandise  may  be  kept  in 
cold  storage? 

1  A  full  description  of  the  methods  of  marketing  cheese  is  found 
in  Bulletin  \o.  251  and  in  Bulletin  No.  2S1  of  the  University  of  Wisconsin 
Agricultural  Experiment  Station. 

'  U.  S.  Department  of  Agrinillure,  Bulletin  No.  776,  "Cold  Storage 
Reports,  Season  1917-18,"  p.  IG. 


PART  V 

METHODS  OF  MARKETING  MATERIALS, 

EQUIPMENT  AND  SUPPLIES  FOR 

WHOLESALE  CONSUMPTION 

THIS  group  of  problems  illustrates  the  methods 
by  which  the  trade  in  merchandise  for  wholesale 
consumption  is  carried  on: — direct  sale,  the 
functions  of  raw  material  merchants,  organized  specu- 
lation, problems  of  financing  trade  in  raw  materials, 
auction  systems,  the  services  of  middlemen  in  the 
trade  in  semi-manufactured  materials,  the  lease  system, 
and  other  methods  of  selling  equipment. 

100.  Hawk-Eye  Coal  Company — Relation  to 
Jobbers 

The  Hawk-Eye  Coal  Conipany  operates  mines  for 
the  production  of  bituminous  coal  in  Eastern  Ohio. 
The  mines  of  this  company  have  a  capacity  of  3,400 
tons  a  day.  Their  product  is  primarily  steam  coal, 
although  it  also  finds  a  good  market  as  domestic  coal 
when  properly  prepared.!  The  preparation  coal  of 
consists  in  removing  foreign  matter  and  sorting  accord- 
ing to  size.  The  Hawk-Eye  Company  is  equipped 
with  modern  cleaning  and  screening  machinery'. 

There  are  wide  differences  in  the  quality  of  coal 
from  different  mines.     The  following  statements  were 

1  The  average  annual  production  of  bituminous  coal  in  the  United 
States  1913-17  was  479,800,000  tons.  The  average  annual  production 
of  anthracite  coal  is  about  70,000,000  tons.  Anthracite  coal  is  used 
chiefly  for  domestic  purposes  and  finds  its  market  largely  in  the  north- 
eastern part  of  the  United  States.  Elsewhere  it  is  not  a  serious  com- 
petitor of  bituminous  coal.  Bituminous  coal  is  produced  in  about 
one-half  the  states  in  the  Union.  Four-fifths  of  the  total,  however, 
is  mined  in  Pennsylvania,  Ohio,  West  Virginia,  and  Illinois.  There 
has  been  a  large  increa.se  in  output  of  bituminous  coal,  the  production 
having  more  than  doubled  in  the  United  States  during  the  last  twenty 
years. 

147 


148  MARKETING  PROBLEMS 

made  in  a  Report  of  the  Boston  Chamber  of  Commerce, 
November,  1909i: 

Of  the  many  industries  that  depend  upon  coal,  each  has 
certain  requirements  which  can  best  be  met  by  the  use  of 
a  coal  with  special  characteristics.  For  instance,  the  making 
of  coke,  the  manufacture  of  gas,  and  the  burning  of  cement 
each  demands  a  coal  with  special  qualities.  Any  coal  may 
be  used  for  the  generation  of  steam,  but  the  differences  in 
character  and  quality  make  some  kinds  preferable  to  others. 
Some  coals  make  more  smoke  than  others  under  the  same 
conditions;  some  kinds  are  faster  burning  than  others, 
making  theni  desirable  for  a  fluctuating  load  and  heavy 
service  in  boiler  plants;  and  there  is  a  great  difference  in  the 
trouble  and  labor  resulting  from  ash  and  clinkers.  Of  still 
greater  importance  is  the  difference  in  the  amount  of  steam 
that  may  be  generated  from  the  various  kinds  of  coal. 

It  is  very  desirable  to  know  before  purchasing  coal 
whether  it  is  going  to  be  suitable  for  its  intended  use.  While 
the  true  test  is  in  its  burning,  yet  there  are  methods  of 
determining  its  character  and  quality  which  give  a  reliable 
indication  of  what  may  be  expected  from  it  in  use,  and  it  is 
possible  to  go  still  further  and  specify  the  nature  and  quality 
of  coal  desired  and  determine  whether  or  not  such  coal  has 
been  delivered.  Probably  the  most  practicable  method  of 
doing  this  is  by  chemical  analysis  and  determination  of 
heating  value. 

*      *      *       * 

The  general  method  of  buying  coal  on  specifications  is  for 
the  purchaser  to  ask  for  bids,  to  be  based  upon  the  delivery 
of  coal  of  a  specified  analysis,  allowing  certain  variations  for 
the  B.  t.  U-.  and  the  various  constituents.  If  the  analysis 
shows  variations  from  the  specifications,  premiums  are  paid 
or  penalties  exacted  in  proportion  to  such  variations  above 
or  below  the  standard.  In  some  forms  of  specifications  the 
bidder  submits  an  analysis  of  coal  he  proposes  to  deliver, 
and  the  analysis  of  the  successful  bidder  is  taken  as  a  stand- 
ard for  the  contract.  In  some  contracts  the  adjustment  of 
price  is  based  on  the  moisture,  volatile,  ash,  sulphur  and 
B.  t.  u.,  while  in  others  only  the  ash  and  B.  t.  u.  are 
considered. 

Differences  are  found  in  coal  from  different  mines 
that  show  the  same  analysis.    Consequently  experi- 

1  Committee  on  Fuel  Supply,  Boston  Chamber  of  Commerce,  The 
Buying  and  Handling  of  Steam  Coal,  pp.  13  and  21. 

2B.t.u.  means  British  thermal  unit.  A  British  thermal  unit  is 
the  quantity  of  heat  required  to  raise  the  temperature  of  one  pound 
of  water  one  degree  Fahrenheit. 


MATERIALS  AND  EQUIPMENT  149 

ence  counts  most  heavily.  WTien  a  consumer  has 
found  coal  that  is  suited  to  his  needs,  he  seeks  to  obtain 
the  same  kind  of  coal  from  the  same  source  regularly. 
The  product  of  the  Hawk-Eye  Coa^  Company  is  not 
sold  extensively  on  analysis. 

The  Hawk-Eye  Coal  Company  has  sold  its  product 
up  to  the  present  time  direct  to  railroads  and  through 
jobbers.  The  jobber  secures  orders  for  the  coal.  He 
transmits  these  orders  in  his  own  name  to  the  coal 
company.  The  jobber  does  not  carry  a  stock  of  coal. 
He  makes  collections  but  receives  credit  from  the  coal 
company  equivalent  to  the  credit  extended  to  cus- 
tomers. The  jobber  knows  his  customers  and  has 
constant  personal  contact  with  them.  The  coal  for 
domestic  use  is  sold  by  the  jobbers  to  retailers,  who 
distribute  it  to  the  individual  consumers. 

Several  of  the  competitors  of  the  Hawk-Eye  Coal 
Company  sell  their  product  direct  or  through  sales 
agencies.  When  a  sales  agency  is  employed,  it  has 
a  permanent  arrangement  with  the  coal  company  and 
takes  the  place  completely  of  the  sales  organization  of 
the  compan3^ 

The  product  of  the  Hawk-Eye  Coal  Company  is 
sold  to  railroads,  and  through  jobbers  to  industrial 
consumers,  to  the  lake  trade,  and  for  domestic  use. 
About  60%,  it  is  estimated,  is  sold  for  distribution  to 
railroads  and  industrial  consumers.  The  railroads  buy 
on  contracts.  Because  of  the  volume  of  their  business 
and  the  absence  of  seasonal  fluctuations  in  their 
demand,  they  receive  somewhat  lower  prices  than 
other  customers.  The  trade  that  is  obtained  through 
jobbers  from  industrial  consumers,  such  as  public 
utility  companies,  steel  companies,  and  manufacturers, 
is  not  subject  to  seasonal  fluctuation.  It  does  vary 
from  year  to  yeaf,  however,  according  to  business 
conditions. 

The  domestic  trade  and  the  lake  trade  are  highly 
seasonal  in  character.  The  lake  trade  is  cut  off  during 
the  months  when  navigation  on  the  Great  Lakes  is 
impossible.  The  domestic  trade  is  active  only  during 
the  fall  and  winter.     This  seasonal  fluctuation  pre- 


150  MARKETING  PROBLEMS 

sents  a  serious  problem,  because  bituminous  coal 
cannot  ordinarily  be  stored  in  large  quantities.  There 
is  too  great  a  fire  risk  and  the  storage  and  handling 
costs  are  too  heavy  to  permit  of  storage  in  large  volume. 
The  Hawk-Eye  Coal  Company  desires  to  increase 
its  trade  with  industrial  consumers  and  to  increase  its 
sales  for  domestic  use.  Should  it  continue  to  sell 
through  jobbers  or  should  it  sell  direct? 


101.  Sugar  Beet  Contracts 

The  following  statement  is  quoted  from  a  government 
report  published  in  1913  :i 

By  far  the  largest  percentage  of  sugar  beets  are  grown 
on  small  plots  and  the  product  furnished  the  sugar  factory. 
In  starting  a  new  sugar  factory  it  is  generally  customary  for 
the  factory  to  buy  a  number  of  farms  the  acreage  of  which 
will  furnish  from  one-third  to  one-half  of  the  supply  of  beets, 
but  as  the  company  becomes  older  and  more  settled  the 
land  is  often  sold  off  or  rented  to  farmers.  In  California  the 
individual  plots  are  much  larger,  and  in  consequence  the 
number  of  growers  furnishing  a  sugar  factory  with  beets  is 
smaller  than  in  practically  any  other  state  outside  of  Utah. 
In  Colorado  and  in  Michigan  the  plots  are  small,  ranging 
from  5  up  to  40  acres  in  general  and  in  a  few  cases  100  and  over. 

The  sugar  company  generally  makes  three  to  five  year 
contracts  with  the  farmers  to  grow  beets  on  a  certain  number 
of  acres  each  year.  This  contract  binds  the  farmer  to  grow 
the  beets  and  to  have  the  supervision  of  the  agriculturist  of 
the  sugar  company.  A  form  of  agreement  of  one  sugar 
company  is  here  given. 

Memorandum  of  agreement  between , 

grower,  and 

1  U.  S.  Department  of  Agriculture,  Report  A'o.  98,  Systems  of  Mar- 
keting Farm  Products  and  Demand  for  Such  Products  at  Trade  Centers, 
p.  151.     See  also  F.  S.  Harris,  The  Sugar  Beet  in  America,  pp.  92-102. 


MATERIALS  AND  EQUIPMENT  151 

1.  The  grower  agrees  to  plant,  cultivate,  irrigate,  har- 
vest, and  deliver  during  the  season  of  1911,  in  compliance 
with  the  directions  of  the  company,  as  may  be  given  from 
time  to  time, acres  of  sugar  beets  on  the  fol- 
lowing-described lands,  to  wit, quarter,  section , 

township ,  range ,  County,  Colo. 

2.  Seed  will  be  furnished  by  the  company  at  10  cents 
per  pound;  not  less  than  20  pounds  per  acre  shall  be  planted, 
and  none  other  shall  be  used. 

3.  The  grower  agrees  that  all  beets  grown  by  him  will  be 
delivered  to  the  company,  in  the  factory  sheds  or  aboard 
cars,  and  as  ordered  by  the  company,  properly  topped  at  the 
base  of  the  bottom  leaf,  subject  to  proper  deductions  for 
tare,  free  from  dirt,  stones,  trash,  or  foreign  substances 
liable  to  interfere  with  the  work  of  the  factory,  and  that  he 
will  protect  the  beets  from  sun  and  frost  after  removal  from 
the  ground.  The  company  has  the  option  of  rejecting  any 
diseased,  frozen,  or  wilted  beets,  beets  of  less  than  12  per 
cent  sugar  or  less  than  80  per  cent  purity,  or  beets  that  are 
not  suitable  for  the  manufacture  of  sugar. 

4.  Beets  deUvered  and  accepted  will  be  paid  for  by  the 
company  at  the  rate  of  S5  per  ton  for  beets  testing  12  per 
cent  sugar,  and  33}^  cents  additional  for  each  per  cent 
above  12  per  cent.^ 

Payment  the  15th  of  each  month  for  beets  delivered 
during  the  previous  month. 

5.  The  company  will  pay  50  cents  per  ton  additional  for 
beets  siloed  and  delivered;  siloed  beets  shall  not  be  delivered 
except  upon  call  of  the  company. 

6.  The  company  will  pay  the  freight  on  all  beets  delivered 
by  railroad,  but  cars  must  be  loaded  to  their  capacity. 
Extra  charges  for  cars  loaded  less  than  capacity  will  be 
charged  to  the  grower. 

7.  The  company  will  give  to  the  grower,  at  the  factory 

J  The  following  statement  was  published  in  The  Retail  Grocers' 
Advocate,^  January  30,  1920:  "Denver  (Colo.),  January  27.  Members 
of  the  National  Sugar  Beet  Growers'  Association,  in  convention  here 
today,  voted  to  demand  more  money  for  their  product.  A  sliding 
scale,  based  on  the  seaboard  prices  of  refined  sugtu",  w:xs  adopted. 

"The  association  voted  to  demand  contracts  calling  for  prices 
ranging  from  $12  to  $21  a  ton,  based  on  a  minimum  of  9  cents  a  px)und 
for  sugar.  Each  advance  of  1  cent  in  sugiu-  prices  would  bring  $1.50 
additional  a  ton  to  the  growers.  Refiners  have  offered  a  fiat  contract 
of  $12  a  ton,  which  the  growers  rejected.  Each  State  organization, 
however,  was  left  free  to  adopt  a  compromise  with  refiners  from  the 
national  organization's  schedule. 

"Wages  of  farm  labor  in  caring  for  the  beet  crop  will  be  advanced 
this  summer,  the  convention  agreeing  to  a  15  per  cent  increase.  This 
was  said  to  mean  an  incre:iscd  cost  of  $4  an  acre  for  cultivation.  A 
5  per  cent  incre:ise  in  wages  for  labor  in  thinning  and  10  per  cent  in 
pulhng  and  topping  was  adopted.  A  proposal  for  $1.00  a  ton  above 
the  average  yield  of  ten  tons  to  the  acre  was  rejected." 


152  MARKETING  PROBLEMS 

without  charge,  beet  pulp  not  exceeding  20  per  cent  of  the 
weight  of  the  beets  delivered  by  him  under  his  contract, 
providing  the  grower  gives  written  notice  to  the  company 
previous  to  July  1  of  the  quantity  desired;  the  pulp  to  be 
taken  by  the  grower  during  the  time  of  slicing,  as  the 
company  may  direct. 

8.  Any  advances  made  to  the  grower  by  the  company  in 
the  way  of  seed,  cash,  labor,  or  otherwise  shall  be  considered 
as  part  payment  for  the  crop  of  beets  and  be  a  first  lien 
thereon.  The  grower  agrees  not  to  assign  this  contract 
without  written  consent  of  the  company. 

9.  No  agent  of  the  company  is  authorized  to  change  the 
provisions  of  this  contract. 

(signature  of  grower) 


_C  o  m  p  an  y 


By 

Date 

This  particular  form,  while  used  by  one  large  company, 
represents  the  general  form  of  contract  of  other  sugar 
companies. 

What  does  the  beet  sugar  manufacturer  gain  by 
contracting  in  this  way  for  a  supply  of  beets?  Are 
there  any  disadvantages? 


102.     Red  Wing  Milling  Company — Buying  from 
Local  Elevators 

Corn  is  the  largest  and  in  the  aggregate  the  most 
valuable  agricultural  crop  in  the  country^.  The  annual 
corn  crop  is  usually  about  3,000,000,000  bushels.  Corn 
is  grown  in  all  parts  of  the  United  States,  but  Iowa  is 
the  center  of  the  so-called  corn  belt,  the  region  of 

*  General  references  on  the  grain  trade :  P.  T.  Dondlinger,  Book 
of  Wheat.  R.  E.  Smith,  Wheal  Fields  and  Markets  of  the  World.  L.  D.  H. 
Weld,    The   Marketing  of  Fann  Products.     Amials  of  the  American 


MATERIALS  AND  EQUIPMENT  153 

heaviest  production.  The  other  states  in  the  corn  belt 
are  Illinois,  Indiana,  Ohio,  Missouri,  and  Nebraska. 
A  peculiarity  of  the  corn  trade  is  that  about  70%  of 
the  corn  is  consumed  in  the  counties  where  it  is  grown. 
Thus,  a  substantial  portion  of  the  crop  does  not  enter 
into  more  than  purely  local  trade;  it  is  used  locally  for 
the  feeding  of  hogs  and  cattle.  The  large  hog-raising 
and  cattle-fattening  districts  are  in  the  corn  belt. 

The  annual  wheat  crop  is  usually  in  the  neighbor- 
hood of  1,000,000,000  bushels,  although  subject  to 
rather  wide  fluctuations.  The  chief  center  of  winter 
wheat  production  is  Kansas,  Nebraska,  Missouri,  and 
Illinois.  The  leading  district  for  the  production  of 
spring  wheat  is  North  and  South  Dakota,  and  Minne- 
sota. Substantial  quantities  of  both  spring  and  winter 
wheat  are  also  grown  in  several  other  states. 

In  the  Pacific  Northwest,  in  the  states  of  Wash- 
ington and  Oregon,  there  is  a  large  production  of 
wheat,  both  spring  and  winter.  The  wheat  growing 
district  of  the  Pacific  Northwest  is  entirely  distinct 
commercially  from  the  wheat  growing  regions  east  of 
the  Rocky  Mountains'. 

In  the  grain  trade  generally,  elevators  are  used  for 
handling  and  storage.  In  practically  every  district 
where  a  substantial  quantity  of  grain  is  produced,  one 

Academy  of  Political  and  Social  Science,  September,  1911.  G.  G. 
Huebner,  Agricultural  Commerce.  G.  Livingston  and  K.  B.  Seeds, 
"Marketing  Grain  at  Country  Points,"  U.  S.  Department  oj  Agriculture, 
Bulletin  No.  658.  S.  O.  Dunn,  "Ciniin  Handling  in  the  United  States," 
Railway  Age  Gazelle,  June  4,  11,  1009.  Chicago  Bojird  of  Trade, 
Annual  Reports.  Minneapolis  Chamber  of  Commerce,  Annual  Reports. 
New  York  Produce  Exchange,  Annual  Reports.  Grain  Dealers'  Journal. 
Northwestern  Miller. 

1  The  movement  of  the  grain  grown  in  the  Pacific  Northwest  is 
westward  to  the  Itu^ge  cities  on  the  coast.  There  the  grain  is  exported 
or  milled  into  flour  for  local  consumption  or  export.  The  grain  exported 
from  the  Pacific  Northwest  goes  mainly  to  Liverpool.  When  flour  is 
exported,  it  is  generally  shipi)ed  to  the  Orient.  Prior  to  the  war  the 
exports  of  Hour  took  place  only  in  years  of  low  prices.  (A.  Herglund, 
"The  Wheat  Situation  in  Wiushington,"  PoUlical  Science  Quarterly, 
September,  1909,  pp.  489-.')03.)  Thus  the  grain  from  the  Pacific 
Northwest  does  not  enter  into  direct  coni|)ef  ition  in  the  United  States 
with  grain  grown  east  of  the  Pocky  Mountains. 

One  of  the  chief  peculiarities  of  the  tra<le  in  grain  in  the  Pacific 
Northwest  is  that  it  h;us  been  handled  until  recently  entirely  in  sacks, 
not  in  bulk  by  means  of  elevators. 

One  reason  for  the  use  of  sacks  was  the  custom  which  developed 
before  the  country  was  thoroughly  opened  by  railroads.     The  grain 


154'  MARKETING  PROBLEMS 

or  more  grain  elevators  are  located.  At  the  primary 
markets,  at  the  mills,  and  at  export  ports  there  are 
large  grain  elevators.  Elevators  are  used  so  universally 
because  of  the  economy  that  they  afford  in  handling 
the  product.  Mechanical  means,  such  as  traveling 
belts,  are  used  for  carrying  the  grain  to  the  storage 
bins,  and,  when  shipping,  the  grain  is  loaded  from  these 
bins  by  the  force  of  gravity.  The  amount  of  labor  thus 
required  for  handling  the  grain  after  it  once  enters  an 
elevator  is  small.  An  elevator  serves  as  a  warehouse 
either  temporarily  or  for  several  months.  In  the 
primary  markets  the  terminal  elevators  also  have  facili- 
ties for  cleaning  and  drying  the  grain. 

Occasionally  a  farmer  with  a  large  crop  of  grain 
ships  his  crop  directly  to  the  primary  market,  either 
selling  it  outright  or  shipping  on  consignment.  This, 
however,  is  unusual,  and  only  a  very  small  percentage 
of  the  grain  crop  is  thus  sold  directly  in  the  primary 
market  by  the  farmers.  The  bulk  of  the  grain  is  sold 
locally  by  the  farmers  for  cash  to  grain  dealers  who 
operate  local  elevators,  to  farmers'  cooperative  elevators 
which  take  the  place  of  independent  grain  dealers,  or 
to  line  elevator  companies.  Occasionally  some  grain 
is  sold  to  track  buyers,  or  scoopers  as  they  are  some- 
times called.  Although  this  has  been  of  enough  im- 
portance to  occasion  attempts  at  boycott  by  the  grain 
dealers,  the  volume  of  the  crop  handled  by  track  buyers 
or  scoopers  is  of  little  significance. 

that  was  exported  was  formerly  shipped  by  sailing  vessels  which  went 
around  the  Horn  to  Europe.  For  these  vessels  it  was  necessary  that 
the  grain  be  sacked  to  prevent  shifting  in  rough  weather.  The  trip 
through  the  tropics,  furthermore,  overheated  bulk  grain.  As  a  result, 
insurance  companies  raised  the  rates  on  bulk  grain  to  a  prohibitive  point. 

Within  recent  years  the  bulk  business  has  begun  to  develop. 
Elevators  have  been  built  at  Tacoma,  Seattle,  and  Portland,  and  some 
country  elevators  have  been  established.  This  change  was  occasioned 
in  part  by  the  increase  in  price  of  jute  sacks  which  substantially  en- 
hanced the  cost  of  handling  by  that  method.  Furthermore,  the  oppor- 
tunity for  shipping  to  Europe  by  steamships  through  the  Panama 
Canal  has  tended  to  remove  some  of  the  causes  for  the  previous  use 
of  sacks. 

The  use  of  elevators,  nevertheless,  is  still  retarded  somewhat  by 
the  large  number  of  varieties  of  wheat  grown  in  this  district,  which 
cannot  De  mixed  in  transit.  (Howard  T.  Ijewis:  "Tha  Elevator  Move- 
ment in  the  Pacific  Northwest,"  Journal  oj  Political  Economy,  October, 
1916,  pp.  794-804). 


MATERIALS  AND  EQUIPMENT  155 

The  Red  Wing  Milling  Company  in  Minnesota  has 
a  large  output  of  high-quality  branded  flour,  which 
requires  evenly  graded  wheat.  If  the  company  deter- 
mines to  buy  its  grain  at  country  points,  why  will  it 
probably  find  it  advantageous  to  buy  from  grain 
elevators  rather  than  direct  from  farfners? 


103.     Methods  of   Selling  Wheat   by   Country 

Dealers 

A  country  elevator  usually  sells  grain  by  one  of 
three  methods:  "on  track,"  "to  arrive,"  or  "con- 
signed."* 

When  grain  is  sold  "on  track,"  the  price  is  agreed 
upon  before  shipment.  The  seller  guarantees  that 
weight  and  grade  loaded  into  the  car  agree  with  the 
contract  and  the  bill  of  sale.  The  buyer  pays  the 
freight.  When  grain  is  sold  "to  arrive,"  it  is  agreed 
that  it  is  to  be  delivered  within  a  specified  time  at  the 
mill  or  primary  market.  The  seller  guarantees  weight 
and  grade  at  time  of  delivery.  The  seller  pays  the 
freight. 

When  grain  is  sold  on  consignment,  it  is  sent  by  the 
grain  dealer  to  a  commission  merchant  at  a  primary 
market.  On  arrival  the  grain  is  inspected  and  is  sold 
by  the  commission  merchant  for  a  commission,  usually 
one  cent  a  bushel.  The  rate  of  commission  is  deter- 
mined by  the  rules  of  the  local  trade  organization  of 
which  the  commission  man  is  a  member.    The  com- 

•  G.  Livingston  and  K.  B.  Sords,  "Marketing  Grain  at  Country 
Points,"  U.  S.  Department  of  Agriculture,  Bulletin  No.  658. 


156  MARKETING  PROBLEMS 

mission  man  collects  payment  for  the  grain,  and,  after 
deducting  his  commission  and  any  incidental  expenses 
that  have  accrued,  remits  the  balance  to  the  grain 
dealer.  Oftentimes  the  grain  dealer  draws  a  draft  at 
time  of  shipment  on  the  commission  man  to  whom  the 
car  is  sent,  attaching  the  draft  to  a  bill  of  lading,  and 
cashes  this  at  the  local  bank.  After  the  grain  is  sold, 
the  commission  man  remits  to  the  grain  dealer  the 
balance  that  is  due  the  latter. 

According  to  an  investigation  made  by  the  United 
States  Department  of  Agriculture  in  1915,  it  was 
reported  that  approximately  50%  of  the  grain  shipped 
in  the  Middle  West  was  sold  ''on  track,"  20%  ''to 
arrive,"  and  21%  "consigned."  In  Minnesota  and  the 
other  grain  states  of  the  Northwest,  the  bulk  of  the 
shipments  were  "consigned."  In  the  states  east  of  the 
Mississippi,  on  the  other  hand,  the  reports  indicate 
that  over  75%  of  the  grain  was  sold  "on  track."  The 
remainder  was  divided  about  equally  between  "to 
arrive,"  and  "consigned"  sales.  In  Texas  and  Okla- 
homa over  50%  was  said  to  be  sold  "to  arrive,"  and 
most  of  the  remainder  "on  track."  There  was  little 
grain  "consigned"  in  these  states. 

What  are  the  relative  merits  of  each  of  these 
methods  of  sale  from  the  standpoint  of  the  country 
grain  dealer? 


104.    Line  Elevator  Companies 

The  leading  primary  markets  for  wheat  are  Minne- 
apolis, Duluth,  Kansas  City,  Chicago,  St.  Louis,  and 
half  a  dozen  other  large  cities  in  the  Middle  West.  For 
corn  and  oats  the  leading  primary  markets  are  Chicago, 
St.    Louis,   Peoria,    Kansas   City,   Minneapolis,   and 


MATERIALS  AND  EQUIPMENT  157 

Milwaukee.  The  commission  merchants,  to  whom 
grain  is  consigned  by  country  elevators,  are  located  in 
these  primary  markets.  The  grain  that  they  receive 
on  consignment  they  sell  to  millers,  local  grain  merchants, 
and  export  grain  merchants. 

A  second  group  in  the  primary  markets  is  made  up 
of  grain  merchants  who  buy  directly  from  the  country 
elevators.  A  third  group  is  the  line  elevator  companies. 
In  the  primary  markets,  like  Chicago  and  Minneapolis, 
a  portion  of  the  elevators  are  known  as  private  elevators 
and  the  remainder  as  public  elevators.  A  private 
elevator  handles  only  grain  bought  and  sold  by  the 
owner  of  the  elevator.  It  usually  has  machinery  for 
grading  and  blending  the  grain.  A  pubhc  elevator  is  a 
public  storage  space.  It  has  no  machinery  for  treating 
the  grain,  and  it  is  required  always  to  keep  the  same 
grade  of  grain  in  the  same  bins.  The  rates  of  storage 
in  a  public  elevator  are  fixed,  and  certificates  are  issued 
to  the  owners  of  the  grain  stored  in  the  elevator.  Each 
certificate  calls  for  a  definite  quantity  of  a  specified 
grade  of  grain.  The  identity  of  individual  lots  is  not, 
however,  preserved.  Public  elevators  are  subject  to 
public  inpsection  and  supervision. 

A  line  elevator  company  has  a  large  private  elevator 
or  elevators  in  the  primary  market  and  operates  local 
elevators  at  country  points,  having  its  own  buyers 
purchase  grain  at  these  country  points  for  shipment 
through  their  own  local  elevators  to  the  terminal 
elevator  in  the  primary  market.  Usually  a  line  ele- 
vator company  operates  on  the  line  of  a  single  railroad 
company.  The  Pevey  Grain  Company,  for  example, 
operates  largely  on  the  Union  Pacific,  and  the  Rosen- 
baum  Grain  Company  on  the  Rock  Island. 

What  advantages  accrue  to  a  line  elevator  company? 
What  disadvantages? 


158  MARKETING  PROBLEMS 

105.     Federal  Wheat  Grades 

At  the  terminal  markets  grain  shipped  on  consign- 
ment or  sold  by  grade  formerly  was  graded  either  by 
inspectors  acting  under  the  rules  and  regulations  of  a 
board  of  trade  or  by  state  officials.  In  Illinois  and 
Minnesota  grading  at  the  terminal  markets  was  under 
the  supervision  of  state  officials.  The  inspector  or 
sampler  took  a  sample  from  each  car,  which  was 
preserved  for  future  reference  in  case  of  appeal  from 
the  decision  as  to  grade  made  by  the  inspector.  This 
system  of  grading  still  obtains  for  local  shipments  of 
grain,  originating  within  the  state  in  which  the  terminal 
maiket  is  located. 

Grading  of  interstate  shipments  of  grain,  however, 
is  now  subject  to  federal  legislation.  The  Grain 
Standards  Act  was  passed  by  Congress  in  1916.  Ac- 
cording to  this  act  the  Secretary  of  Agriculture  was 
authorized  to  establish  official  grain  standards  for  corn 
wheat,  rye,  oats,  barley,  flaxseed,  and  such  other 
grains  as  he  might  decide  upon.  The  act  provided  that 
grain  sold  or  shipped  in  interstate  or  foreign  commerce 
by  grade  must  be  inspected  and  graded  by  a  United 
States  licensed  inspector.  Grain  can  be  sold  by 
sample  or  type  without  official  grading.  Provision  was 
made  that  in  his  discretion  the  Secretary  of  Agriculture 
might  license  state  inspectors  also  as  federal  inspectors. 

Federal  grades  have  been  established  for  grain 
in  accordance  with  this  act.  The  following  statement 
is  quoted  from  a  bulletin  of  the  United  States  Depart- 
ment of  Agriculture^ : 

When  a  farmer  hauls  his  wheat  to  a  station  in  his  own 
state  and  sells  it  to  the  local  elevator,  although  it  is  bought 
and  paid  for  by  grade,  he  is  making  a  transaction  which 
does  not  require  an  interstate  shipment.  The  grade  in  these 
cases  is  usually  placed  upon  the  wheat  by  the  elevator  man- 
ager. It  is  not  then  graded  by  a  licensed  inspector  because 
the  inspectors  are  seldom  located  at  country  points.  This 
feature  is  unfortunate,  but  the  volume  of  inspection  work  at 
any  one  country  shipping  point  is  hardly  ever  large  enough 

*  U.  S.  Department  of  Agriculture,  Bureau  of  Markets,  Sertnce  and 
Regulatory  Announcements  No.  5^,  "How  Hard  Red  Winter  Wheat  Is 
Grading  under  Federal  Standards,"  p.  2. 


MATERIALS  AND  EQUIPMENT  159 

or  continues  over  a  sufficiently  long  period  of  time  to  war- 
rant inspectors  in  taking  up  work  at  such  points.  There- 
fore, the  correct  grading  of  wheat  at  country  points  is  usually 
a  matter  between  the  farmer  and  the  local  buyer  and  is  one 
with  which  local  authorities  and  not  the  Department  of 
Agriculture  can  deal. 

Unless  this  wheat  is  ground  at  a  local  mill,  in  most  cases 
it  is  finally  shipped  to  a  terminal  market,  whore  it  is  graded 
by  a  disinterested  inspector  who  is  licensed  by  the  Depart- 
ment of  Agriculture,  and  in  deciding  the  grade  of  the  wheat 
he  uses  the  grades  established  by  the  United  States 
Department  of  Agriculture — the  Federal  wheat  grades. 

What  is  the  significance  of  the  Grain  Standards  Act 
from  the  standpoint: 

(a)  Of  Rudolph  Johnson,  a  farmer  raising  wheat  on 
a  medium-size  farm  in  North  Dakota? 

(b)  Of  Eric  Wilson,  a  local  grain  dealer? 

(c)  Of  the  Pilgrim  Flour  Mills,  operating  a  large 
plant  in  Minneapolis? 

(d)  Of   the   Pioneer   Milling  Company,  operating 
large  flour  mills  in  Buffalo? 


106.    Chicago  Board  of  Trade  Contract 

Organized  speculation  in  grain  is  conducted  on  the 
exchanges  at  Chicago,  Minneapolis,  New  York,  Duluth, 
and  several  other  cities  in  the  grain  growing  district 
and  in  the  East^.  The  Chicago  Board  of  Trade  is  the 
predominant  market  for  organized  speculation. 

'  H.  H.  Brace,  Organized  Speculation.  P.  T.  DondlinRcr,  Book  of 
Wheat.  S.  S.  riiichncr,  "The  P'unctioii.s  of  Produce  Exchanges," 
Annals  of  the  American  Acadrvnj  of  Social  and  f'nlitical  Scirncr,  iScplcm- 
bcr,  1911.    R.  E.  Smith,  Wheat  Fields  and  Markets  of  the  World. 


160  MARKETING  PROBLEMS 

The  transactions  in  the  "futures"  market  on  the 
Chicago  Board  of  Trade  are  carried  on  in  accordance 
with  the  rules  and  regulations  that  have  been  estab- 
hshed  to  govern  such  business  ^ 

A  "futures"  contract  is  made  upon  the  basis  of  the 
specified  grade  of  grain.  The  contract  provides  for 
delivery,  either  on  the  buyer's  demand  or  at  the  seller's 
pleasure  within  a  specified  month  at  a  price  fixed  in 
the  contract.  Provision  is  made  in  the  rules,  however, 
whereby  other  grades  may  be  delivered  on  the  basis 
contract  with  a  stipulated  adjustment  in  price.  The 
following  rule  governs  the  grades  deliverable  on  the 
basis  contract  of  the  Chicago  Board  of  Trade^: — 

On  contracts  for  grain  or  flaxseed  for  future  delivery  the 
tender  of  a  higher  grade  of  the  same  kind  of  grain  or  flax- 
seed than  the  one  contracted  for  shall  be  deemed  sufficient. 
All  contracts  made  for  Wheat  hereafter,  unless  otherwise 
specified,  shall  be  understood  as  for  "Contract"  wheat,  and 
on  such  contracts,  requiring  delivery  after  June  30,  1917, 
a  tender  of  No.  1  Dark  Hard  Winter  Wheat,  No.  1  Hard 
Winter  Wheat,  No.  1  Yellow  Hard  Winter  Wheat,  No.  2 
Dark  Hard  Winter  Wheat,  No.  2  Hard  Winter  W^heat, 
No.  2  Yellow  Hard  Winter  Wheat,  No.  1  Red  Winter 
Wheat,  No.  2  Red  Winter  Wheat,  No.  1  Northern  Spring 
Wheat  or  No.  1  Velvet  Chaff  Wheat;  and  on  such  contracts, 
requiring  delivery  after  July  31,  1917,  a  tender  of  No.  1 
Dark  Hard  Winter  Wheat,  No.  1  Hard  Winter  Wheat, 
No.  1  Yellow  Hard  Winter  Wheat,  No.  2  Dark  Hard  Winter 
Wheat,  No.  2  Hard  Winter  W^heat,  No.  2  Yellow  Hard 
Winter  Wheat,  No.  1  Red  Winter  Wheat,  No.  2  Red  Winter 
Wheat,  No.  1  Dark  Northern  Spring  Wheat,  No.  1  Northern 
Spring  Wheat,  No.  2  Dark  Northern  Spring  Wheat  or  No.  2 
Northern  Spring  Wheat,  in  such  proportions  as  may  be 
convenient  to  the  seller,  subject,  however,  to  the  provisions 
of  Section  5  of  Rule  XXI,  shall  be  deemed  a  valid  tender. 

Wheat  that  is  inspected  as  smutty,  or  treated  by  any 
other  process  than  drying,  shall  not  be  deliverable  on  contracts. 

Also  on  such  contracts  for  delivery  of  wheat  on  and  after 
July  1,  1917,  a  tender  of  No.  3  Dark  Hard  Winter  Wheat, 
No.  3  Hard  Winter  Wheat,  No.  3  Yellow  Hard  Winter 
Wheat,  No.  3  Red  Winter  Wheat,  No.  1  Hard  White  Wheat 
and  No.  2  Hard  White  Wheat,  at  a  discount  of  five  cents 

^  These  rules  are  stated  in  full  in  the  Annual  Report  of  the  Chicago 
Board  of  Trade. 

^  Chicago  Board  of  Trade,  Annual  Report,  1918,  p.  51,  Rule  XXII, 
Section  3. 


MATERIALS  AND  EQUIPMENT  161 

per  bushel,  in  such  proportions  as  may  be  convenient  to 
the  seller,  subject,  however,  to  the  provisions  of  Section  5 
of  Rule  XXI,  shall  be  deemed  a  valid  tender;  and  on  such 
contracts,  for  delivery  of  Wheat  on  and  after  August  1, 
1917,  a  tender  of  No.  1  Red  Spring  Wheat  and  No.  2  Red 
Spring  Wheat,  without  discount,  and  No.  3  Dark  Northern 
Spring  Wheat,  No.  3  Northern  Spring  Wheat  and  No.  3 
Red  Spring  Wheat,  at  a  discount  of  eight  cents  per  bushel, 
in  such  proportions  as  may  be  convenient  to  the  seller,  sub- 
ject, however,  to  the  provisions  of  Section  5  of  Rule  XXI, 
shall  be  deemed  a  valid  tender. 

For  delivery  on  and  after  January  1,  1919,  all  contracts 
for  corn,  unless  otherwise  specified,  shall  be  understood  as 
for  "contract"  corn  and  on  such  contracts  a  tender  of  the 
following  described  grades  of  corn  in  such  proportions  as 
may  be  convenient  to  the  seller,  but  in  no  case  an  amount 
less  than  1,000  bushels  of  any  one  grade  in  one  elevator, 
shall  be  deemed  a  valid  tender  at  the  price  differences 
mentioned  in  the  following  schedule,  subject,  however,  to 
the  provisions  of  Section  5  of  Rule  XXI : 

No.  1  White  Corn  ] 

No.  2  White  Corn  1  at  3^  cent  per  bushel  over  contract 

No.  1  Yellow  Corn  I     price. 

No.  2  Yellow  Corn] 

No.  1  Mixed  Cornl   at  contract  price. 

No.  2  Mixed  Corn/ 

No.  3  White  Corn  1  at    two    cents     per    bushel    under 

No.  3  Yellow  Corn/     contract  price. 

No.  3  Mixed  Corn — at  2}/^  cents  per  bushel  under 
contract  price. 

No.  4  White  Corn  1  at    43^    cents    per    bushel    under 

No.  4  Yellow  Corn/     contract  price. 

No.  4  Mixed  Corn — at  5  cents  per  bushel  under  contract 
price. 

Provided  that  No.  4  Corn  of  the  new  crop  can  be  delivered 
only  during  the  months  of  November,  December,  January 
and  February. 

Contracts  covering  any  of  the  commodities  dealt  in 
under  the  provisions  of  the  rules  of  this  Board  for  future 
delivery  in  store,  or  for  shipment,  or  to-arrive,  shall  be 
deemed  to  be  for  the  quality  or  standard  of  grade  as  defined 
in  the  rules  of  the  Illinois  State  Grain  Inspection  Depart- 
ment, and  any  change  in  any  such  standard  of  grades  and 
in  the  rules  of  the  Illinois  State  Grain  IiLspection  Depart- 
ment defining  them,  shall  be  held  as  not  affecting  in  any 
way  whatsoever  the  validity  of  any  such  contracts  pending 
at  time  such  change  is  made,  and  commodities  officially 
graded  under  the  provision  of  rules  in  force  at  time  of 
delivery  shall  be  deemed  to  be  a  valid  tender  on  any  such 
contract. 


1G2  MARKETING  PROBLEMS 

For  delivery  on  and  after  Juno  1,  1918,  all  contracts  for 
oats,  unless  otherwise  specified,  shall  be  understood  as  for 
"contract"  oats,  and  on  such  contracts  a  tender  of  the 
following  described  grades  of  oats,  in  such  proportions  as 
may  be  convenient  to  the  seller,  but  in  no  case  an  amount 
less  than  1,000  bushels  of  any  one  grade  in  one  elevator, 
shall  be  deemed  a  valid  tender;  subject,  however,  to  the 
provisions  of  Section  5  of  Rule  XXI : 

Standard  Oats,  at  contract  price. 

No.  3  White  Oats,  at  Ij/^  cents  per  bushel  discount. 

No.  2  White  Oats,  at  }/i  cent  per  bushel  premium. 

No.  1  White  Oats,  at  3^  cent  per  bushel  premium. 
Contracts  for  rye,  by  grade  alone,  delivered  in  store,  for 
immediate  or  for  future  delivery,  unless  otherwise  specified, 
shall  be  understood  as  for  No.  1  or  No.  2  Rye,  in  such  pro- 
portions as  may  be  convenient  to  the  seller,  subject,  however, 
to  the  provisions  of  Section  5  of  Rule  XXI. 

For  delivery  on  and  after  September  9,  1918,  all  con- 
tracts for  barley  by  grade  alone,  delivered  in  store,  for 
immediate  or  for  future  delivery,  unless  otherwise  specified, 
shall  be  understood  as  for  No.  4  Barley;  provided,  however, 
that  No.  3  Barley  and  all  higher  grades  may  be  delivered 
at  a  premium  of  five  cents  per  bushel,  in  such  proportions 
as  may  be  convenient  to  the  seller,  but  in  no  case  shall  any 
amount  of  less  than  1,000  bushels  of  any  one  grade  in  any 
one  elevator  be  deemed  a  valid  tender;  subject,  however, 
to  the  provisions  of  Section  5  of  Rule  XXI. 

On  contracts  for  wheat,  rye,  or  oats,  for  future  delivery 
in  store  in  no  case  an  amount  less  than  1,000  bushels  of 
any  one  grade  in  one  elevator  shall  be  deemed  a  valid  tender. 

The  delivery  of  grain  on  the  exchange  is  efTected 
by  the  transfer  of  warehouse  receipts  issued  by  regular 
elevators.  The  following  provision  is  made  in  the 
rules  of  the  Chicago  Board  of  Trade^ : 

All  deliveries  upon  contracts  for  grain  or  flax  seed,  unless 
otherwise  expressly  provided,  shall  be  made  by  tender  of 
regular  warehouse  receipts,  which  receipts  shall  have  been 
registered  by  an  officer  duly  appointed  for  that  purpose. 
All  such  warehouse  receipts  shall  be  made  to  run  five  days 
from  date  of  delivery  on  regular  or  customary  storage 
charges,  which  regular  or  customary  charges  shall  follow 
such  warehouse  receipts  and  be  chargeable  upon  the  prop- 
erty covered  by  the  same,  and  shall  be  issued  by  such  houses 
as  have  comphed  with  the  Rules  of  the  Board  of  Trade  and 
the  Regulations  and  Requirements  of  the  Board  of  Directors, 

*  Chicago  Board  of  Trade,  Annual  Report,  1918,  p.  42,  Rule  XXI, 
Section  1. 


MATERIALS  AND  EQUIPMENT  1G3 

and  have  been  declared  regular  warehouses  for  the  storage 
of  grain  or  flax  seed  by  said  Board  of  Directors;  and  it  shall 
be  the  duty  of  the  Board  of  Directors,  prior  to  the  first  day 
of  July  in  each  year,  to  inspect  all  warehouses,  the  proprietors 
or  managers  of  which  shall  apply  to  have  their  receipts 
declared  regular  for  delivery  on  contracts  under  the  Rules 
of  the  Board  of  Trade,  and  no  warehouse  shall  be  declared 
a  regular  warehouse  unless  it  is  conveniently  approachable 
by  vessels  of  ordinary  draft  and  has  customary  shipping 
facilities,  and  unless  the  storage  rates  on  all  grain  or  flax 
seed  in  such  warehouses  in  bulk  and  in  good  condition, 
shall  not  be  in  excess  of  one  cent  per  bushel  for  the  first 
ten  days  or  part  thereof,  and  one-thirtieth  (1-30)  of  one 
cent  per  bushel  for  each  additional  day  thereafter  until  from 
and  after  July  1,  1917,  when  the  storage  rates  shall  not  be 
in  excess  of  one  (1)  cent  per  bushel  for  the  first  ten  days  or 
part  thereof,  and  one-twenty-fifth  (1-25)  of  one  cent  per 
bushel  for  each  additional  day  thereafter  so  long  as  such 
grain  or  flax  seed  remains  in  good  condition,  and  unless  the 
proprietors  or  managers  of  such  warehouse  are  in  good 
financial  standing  and  credit,  and  are  carrying  on  and  intend 
to  continue  to  carry  on  the  legitimate  business  of  public 
warehousemen  under  the  laws  of  the  State  of  Illinois  and  in 
accordance  with  the  Rules  of  the  Board  of  Trade  of  the  City 
of  Chicago  and  the  Regulations  and  Requirements  of  the 
Board  of  Directors  and  until  the  proprietors  or  managers  of 
such  warehouse  shall  file  a  bond  with  sufficient  sureties  in 
such  sum  and  subject  to  such  conditions  as  may  be  deemed 
necessary  by  the  Board  of  Directors,  under  the  Rules  of  the 
Board  of  Trade  and  the  Regulations  and  Requirements  of 
the  Board  of  Directors  in  reference  to  warehouses. 

Whenever  application  shall  be  made  by  the  proprietors 
or  managers  of  any  warehouse  to  have  the  same  declared 
a  regular  warehouse  for  the  storage  of  grain  and  flax  seed 
under  the  provisions  of  this  Rule  (except  in  cases  of  renewal 
on  the  first  day  of  July  in  each  year,  as  hereinbefore  pro- 
vided) any  grain  or  flax  seed  that  may  be  contained  in  said 
warehouse  at  the  time  of  such  application,  shall  be  required 
to  be  removed  from  said  warehouse,  when  after  it  shall 
have  been  graded  and  inspected  according  to  its  quality 
and  condition  then  existing  by  the  duly  constituted  authori- 
ties, such  grain  or  flax  seed  may  then  again  be  received  into 
said  warehouse  and  receipts  issued  therefor  shall  be  regis- 
tered and  dated  upon  the  day  when  such  grain  or  flax  seed 
is  again  actually  nn-eived  into  said  warehouse. 

The  chief  inspector  of  grain  of  the  State  of  Illinois  may, 
upon  request  of  the  Board  of  Directors  of  the  Board  of 
Trade,  appoint  a  supervising  inspector  who  shall  so  super- 
vise the  storage  and  distribution  of  grain  and  of  flax  seed 


164  MARKETING  PROBLEMS 

in  such  warehouse  that  no  discrimination  or  selection  can 
be  made  in  the  quahty  or  j^rade  of  grain  or  flax  seed  in  the 
delivery  of  such  grain  or  flax  seed. 

Warehouse  receipts  issued  by  warehouses  so  declared 
regular  by  the  Board  of  Directors  shall  be  regular  for  delivery 
on  contracts  under  the  Rules  of  the  Board  of  Trade  so  long 
as  the  said  warehouse  shall  continue  to  be  a  regular  ware- 
house, but  the  term  for  which  any  warehouse  is  declared 
a  regular  warehouse  to  issue  such  receipts  shall  be  limited 
to  and  expire  on  the  first  day  of  July  in  each  year.  No 
receipts  issued  on  grain  received  in  any  warehouse  shall  be 
regular  for  delivery  under  the  Rules  of  the  Board  of  Trade 
after  that  date  unless  the  warehouse  upon  which  it  has  been 
issued  has  again  been  declared  a  regular  warehouse  by  the 
Board  of  Directors;  provided,  however,  that  receipts  issued 
before  the  first  day  of  July  by  warehouses  which  have  been 
regular  warehouses  during  the  preceding  year,  but  which 
have  not  been  declared  regular  for  the  succeeding  year,  shall 
be  regular  for  delivery  upon  such  contracts  for  six  months 
after  the  first  day  of  July;  but  nothing  contained  herein 
shall  prevent  the  Board  of  Directors  from  declaring  any  ware- 
house, or  the  receipts  thereof,  irregular  at  any  time  for 
violation  or  non-compliance  with  the  laws  of  the  State  of 
Illinois  or  any  of  the  Rules  of  the  Board  of  Trade  or  of  the 
Regulations  and  Requirements  of  the  Board  of  Directors. 

Provided,  that  the  Board  of  Directors  shall  have  power, 
when  in  their  judgment  an  emergency  exists  requiring  more 
storage  room  than  can  be  supplied  by  the  regular  elevator 
warehouses,  or  because  of  an  inability  to  obtain  insurance 
on  grain  stored  therein,  to  declare  any  storehouses,  vessels, 
or  places  suitable  for  the  storage  of  grain  or  flax  seed  within 
the  Chicago  Switching  District — wherein  the  cost  of  delivery 
to  vessels  or  railroad  cars  shall  not  be  greater  than  such  as  is 
made  by  the  regular  elevators  for  the  same  service — to  be 
regular  places  for  the  storage  of  grain  deliverable  under  the 
Rules  of  the  Board  of  Trade. 

And  provided  further,  that  in  case  it  shall  happen  that  at 
any  time  there  shall  be  no  warehouses  which  shall  be  regular 
warehouses  for  the  storage  of  grain  and  flax  seed,  then  the 
Board  of  Directors  may  declare  any  warehouses  suitable  for 
the  storage  of  grain  or  flax  seed,  whose  aggregate  capacity 
shall  not  exceed  twenty-five  million  (25,000,000)  bushels, 
regular  warehouses  for  the  storage  of  grain  or  flax  seed, 
upon  such  terms  and  for  such  period  as  the  Board  of  Direc- 
tors in  its  discretion  may  deem  necessary  or  proper,  and  the 
warehouse  receipts  issued  by  warehouses  so  declared  regu- 
lar under  this  proviso,  shall  be  regular  for  delivery  on  con- 
tracts under  the  Rules  of  the  Board  of  Trade,  in  the  same 
mamier  as  if  issued  by  warehouses  declared  regular  under 


MATERIALS  AND  EQUIPMENT  165 

the  foregoing  provisions  of  this  section  in  regard  to  declaring 
warehouses  regular  for  the  term  ending  on  the  first  day  of 
July  in  each  year. 

All  complaints  against  elevator  proprietors  under  this 
section  shall  be  heard  and  decided  by  the  Board  of  Directors 
of  the  Board  of  Trade  of  the  City  of  Chicago. 

On  and  after  January  1st,  1915,  grain  in  cars,  including 
that  graded  "subject  to  approval,"  shall  be  deemed  a  valid 
tender  on  contracts  during  the  last  three  business  days  of 
any  month,  under  the  provisions  of  the  rules  pertaining  to 
the  delivery  of  warehouse  receipts — the  railroad  receipt 
issued  against  same  evidencing  ownership  serving  to  convey 
the  title  to  the  grain,  same  as  warehouse  receipts  issued 
against  grain  in  warehouses — when  conforming  to  the 
following  requirements: 

A.  When  within  the  Chicago  Switching  District;  or,  if 
arriving  from  outside  of  the  same,  when  it  has  reached  the 
railroad  yards,  where  samples  are  taken  by  the  Illinois  State 
Grain  Inspection  Department,  and  when  billed  to  an  ele- 
vator the  receipts  of  which  are  regular  on  delivery;  provided, 
nevertheless,  that  grain  so  delivered  shall  be  unloaded  into 
the  elevator  to  which  it  is  billed  before  the  delivery  shall  be 
deemed  complete,  and  bills  for  grain  so  tendered  shall  not 
be  due  and  payable  until  the  elevator  receipt  covering  same 
shall  have  been  delivered  to  the  buyer.  Provided  further, 
that  deliveries  under  this  rule  may  be  diverted  by  the  buyer 
from  unloading  at  a  regular  warehouse  to  any  other  unload- 
ing where  the  same  will  be  weighed  by  the  Weighing  Depart- 
ment of  this  Association,  by  paying  for  the  property  before 
diversion. 

B.  When  the  grade  of  such  grain  tendered  is  evidenced 
as  being  a  proper  grade  under  the  rules  for  tender,  by  a 
certificate  of  inspection  of  the  Illinois  State  Grain  Inspec- 
tion Department  showing  the  inspection  to  have  been  made 
during  the  last  three  business  days  of  the  same  month, 
which  grade  the  seller  shall  be  deemed  as  guaranteeing  to 
the  buyer  to  remain  such  until  the  buyer  has  had  a  reason- 
able time  to  unload;  provided,  that  tenders  of  grain  loaded 
from  elevators  within  the  Chicago  Switching  District  shall, 
in  addition  to  the  Illinois  State  Grain  Inspection  Depart- 
ment certificate,  have  a  certificate  of  approval  of  its  quality 
by  the  Grain  Sampling  Department  of  this  Board  based  on 
examination  made  during  the  last  three  days  of  the  month. 
Provided,  that  if  the  grade  of  grain  in  cars  inspected  is,  on 
reinspection,  or  on  appeal,  lowered  by  the  Illinois  State 
Grain  Inspection  Department,  such  change  of  the  grade 
shall  not  invalidate  any  deliveries  on  contracts  of  grain  made 
before  the  grade  has  been  so  changed ;  and  the  adjustment  of 
any  damages  sustained  by  the  holder  of  the  grain  at  the 


166  MARKETING  PROBLEMS 

time  such  change  in  grade  is  known  to  the  holder  shall  then 
be  determined  on  the  basis  of  the  market  price  of  the  day 
of  delivery  and  shall  become  at  once  due  and  payable. 

C.  When  covered  by  a  duly  authorized  "order"  railroad 
receipt  showing  the  grain  to  be  billed  to  a  regular  elevator 
properly  endorsed  to  convey  title  thereto.  The  delivery 
notice  shall  describe  the  railroad  receipt  in  its  essential  fea- 
tures (date,  issuing  railroad,  car  number  with  name  or 
initial  and  weight  of  contents),  and  shall  be  the  basis  of 
computing  and  determining  all  items  chargeable  to  the 
property  tendered  same  as  storage  charges  against  ware- 
house receipts.  Provided,  that  in  the  event  of  all  regular 
storage  in  the  City  of  Chicago  being  filled,  or  for  any  reason 
unobtainable,  and  sellers  being  unable  to  procure  railroad 
receipts  covering  consignments  of  cars  to  regular  elevators, 
delivery  of  original  bills  of  lading  or  railroad  receipts  issued 
therefor,  the  same  not  showing  consignment  to  any  elevator, 
shall  be  deemed  a  valid  tender  on  contracts. 

D.  When  the  quantity  so  delivered  is  evidenced  by 
weight  certificates  of  the  Weighing  Department  of  this 
Association;  or,  if  evidenced  by  weight  certificate  other  than 
above;  or,  if  the  weight  be  estimated  on  the  basis  of  the 
rated  capacity  of  the  car,  such  other  weight  certificate,  or 
such  estimated  weight,  shall  be  deemed  to  be  guaranteed 
by  the  seller  to  the  buyer;  and  any  excess  over  such  weight 
so  evidenced,  at  time  of  unloading,  if  then  weighed  by  the 
Weighing  Department  of  this  Association,  shall  be  settled 
for  at  the  current  market  value  on  the  day  such  variation 
is  known  to  both  parties,  and  any  recess  from  such  esti- 
mated weight  shall  be  settled  for  at  the  current  market 
value  on  the  day  of  delivery.  The  weight  of  all  carlots  so 
delivered  and  finally  unloaded  at  any  elevator,  the  receipts 
of  which  are  regular  on  delivery,  shall  be  deemed  the  final 
weights  on  which  settlement  is  made. 

E.  At  any  time  when,  in  the  judgment  of  the  Board  of 
Directors,  an  emergency  exists,  grain  in  cars  shall  be  deemed 
a  valid  tender  on  contracts,  on  any  business  day  of  any 
month,  when  the  grade  of  such  grain  tendered  is  evidenced 
as  being  a  proper  grade  under  the  rules  for  tender,  by  a 
certificate  of  inspection  of  the  Illinois  State  Grain  Inspec- 
tion Department  showing  the  inspection  to  have  been  made 
during  the  preceding  seventy-two  hours,  and  when  con- 
forming to  the  other  requirements  of  Paragraphs  A,  B,  C, 
and  D  of  this  Section,  except  that  any  excess  or  shortage 
in  weights  at  time  of  unloading,  if  then  weighed  by  the 
Weighing  Department  of  this  Association,  shall  be  settled 
for  at  the  current  market  value  on  day  such  variation  is 
known  to  both  parties. 

A  large  portion  of  the  "futures"  contracts  on  the 


MATERIALS  AND  EQUIPMENT  167 

Chicago  Board  of  Trade  and  other  speculative  markets 
are  settled  by  the  payment  of  differences.  If  the  spot 
price  at  time  of  settlement  is  higher  than  the  price 
named  in  the  contract,  the  difference  is  paid  by  the 
seller.  If  the  spot  price  is  lower  than  the  price  named 
in  the  contract,  the  buyer  pays  the  difference.  The 
following  statement  is  quoted  from  the  Rules  of  the 
Chicago  Board  of  Trade^ : — 

In  case  it  shall  appear  that  the  delivery  of  any  out- 
standing trade  or  contract  between  members  of  the  Asso- 
ciation may  be  offset  by  some  other  corresponding  trade  or 
contract,  made  by  the  parties  with  other  members  of  the 
Association,  and  the  parties  to  such  trade  or  contract,  or 
their  authorized  agents,  consent  to  such  offset,  such  trade  or 
contract  shall  be  deemed  to  have  been  settled,  and  any 
balance  between  the  current  market  value  of  the  property 
covered  by  such  trade  or  contract,  and  the  several  contract 
prices  shall  be  due  and  payable  immediately  by  the  party 
from  whom  such  balance  may  be  due  to  the  party  entitled 
to  receive  the  same  under  his  contract.  The  current  market 
value  of  the  property  contracted  for  shall  be  conspicuously 
posted,  at  a  stated  hour  each  day,  under  the  direction  of  the 
Board  of  Directors,  in  the  Exchange  Hall  and  in  the  settle- 
ment room  of  the  Board,  which  posting  shall  serve  as  a 
basis  for  the  adjustment  of  all  contracts  settled,  as  herein 
provided  on  that  day. 

Why  should  grain  of  more  than  one  grade  be  made 
deliverable  on  such  a  contract? 

A  large  flour  manufacturing  company  with  mills 
located  in  Minneapolis  buys  its  wheat  direct  from 
local  elevators.  Of  what  importance  to  this  company 
is  the  organized  speculative  market? 

Take  the  case  of  a  local  farmers'  elevator  located 
at  a  country  point  in  North  Dakota.  How  can  it  use 
the  "futures"  market  of  the  Chicago  Board  of  Trade? 
Should  it  ordinarily  use  that  market? 


*  Chicago  Board  of  Trade,  Annual  Report,  1918,  p.  54,  Rule  XXII, 
Section  6. 


108  MARKETING  PROBLEMS 

107.  Chancellor  Manufacturing  Company — Buy- 
ing Cotton  Direct  from  Farmers 

The  average  annual  production  of  raw  cotton '  in 
the  world  during  the  five  crop  years  ending  August  31st, 
1909-13,  was  17,948,000  bales,  the  standard  bale  weigh- 
ing 500  pounds.  The  United  States  supplied  72.6%  of 
this  total  production,  an  annual  average  of  13,000,000 
bales.  India  supplied  18.5%,  Egypt  7.1%,  Turkestan 
and  South  America  most  of  the  remainder.  From  the 
crop  of  the  United  States  64%  was  exported.  American 
mills  have  been  taking  a  greater  and  greater  proportion 
of  the  raw  cotton  crop  of  the  United  States,  but  this 
country,  nevertheless,  still  supplies  a  large  part  of  the 
demand  throughout  the  world  for  raw  cotton. 

The  bulk  of  the  cotton  grown  in  the  United  States 
is  known  as  Upland  with  an  average  length  of  fiber  for 
the  common  grades  of  "^'i  of  an  inch  to  an  inch.  In  the 
bottom  and  swamp  lands  of  Alabama,  Mississippi, 
Arkansas,  and  Louisiana  along  the  Mississippi  River, 
long  staple  Upland  cotton  is  grown  with  fibers  from 
\]/s  to  1%  inches  in  length.  The  best  grades  of  these 
are  called  "Benders"  and  "Peelers".  The  most  valu- 
able cotton  produced  in  this  country,  or  elsewhere,  is 
the  Sea  Island,  grown  on  the  islands  along  the  coast  of 
South  Carolina  and  Georgia.  The  average  length  of 
Sea  Island  staple  is  1^  inches,  ranging  from  13^  to 
23^  inches.  The  Sea  Island  crop  seldom  exceeds 
100,000  bales;  it  is  generally  less  than  1%  of  the  Upland 
crop,  and  it  is  tending  to  dechne  in  quantity. 

^  References  on  the  raw  cotton  trade  include: — U.  S.  Commissioner 
of  Corporations,  Report  on  Cotton  Exchanges.  Melvin  T.  Copeland, 
Cotton  Manufacturing  Industry  of  the  United  States.  G.  G.  Huebner, 
Agricultural  Commerce.  John  A.  Todd,  The  World's  Cotton  Crops. 
National  Association  of  Cotton  Manufacturers,  Year  Book.  U.  S. 
Bureau  of  the  Census,  Cotton  Production  and  Distribution  (annual). 
L.  Conant,  "The  United  States  Cotton  Futures  Act,"  American 
Economic  Review,  March,  1915.  I.  N.  Hoffmann,  "The  Cotton  Futures 
Act,"  Journal  of  Political  Economy,  May,  1915.  D.  E.  Earle  and 
W.  S.  Dean,  "The  Classification  and  Grading  of  Cotton,"  U.  S.  Depart- 
ment of  Agriculture,  Farmers'  Bulletin  No.  591.  W.  A.  Sherman, 
Fred  Taylor,  and  C.  J.  Brand,  "Studies  of  Primary  Cotton  Market 
Conditions  in  Oklahoma,"  U.  S.  Department  of  Agriculture,  Bulletin 
No.  36.  U.  S.  Department  of  Agriculture,  The  Market  Reporter, 
April  10,  1920.  Commercial  and  Financial  Chronicle.  Economic  World. 
New  York  Journal  of  Commerce. 


MATERIALS  AND  EQUIPMENT  169 

Each  of  these  types  of  cotton  has  its  own  uses. 
The  Sea  Island  is  used  only  in  spinning  very  fine  yarns, 
the  long  fibers  permitting  it  to  be  drawn  out  into  a 
fine  thread.  The  long  stapled  Upland  cotton  is  also 
used  for  fine  spinning,  and  falls  into  approximately 
the  same  class  as  Egyptian  cotton.  Some  Egyptian 
cotton,  it  may  be  stated,  is  imported  into  the  United 
States  especially  for  the  manufacture  of  hosiery  and 
automobile  tire  yarns.  Indian  cotton  is  of  short 
length  and  low  grade;  it  has  been  used  particularly  in 
Central  Europe  for  the  manufacture  of  coarse  yarns. 
Upland  cotton  supplies  the  large  trade  intermediary 
between  these  extremes.  Upland  cotton,  however, 
varies  in  length  and  strength  of  fiber,  in  color,  and  in 
freedom  from  dirt,  and  possesses  characteristics  pecu- 
liar to  the  locality  in  which  it  is  grown.  With  the 
machinery  and  methods  in  vogue  a  century  ago  cotton 
was  cotton,  but  as  a  result  of  refinements  in  technique 
and  diversification  of  product,  now-a-days  a  spinner 
gives  careful  attention  to  the  exact  quaUty  of  the 
cotton  that  he  purchases. 

The  first  stage  in  the  movement  of  cotton  from  the 
farm  to  the  factory  is  to  the  gin.  Soon  after  it  is 
picked,  the  farmer  takes  his  cotton  to  the  gin  in  a 
nearby  town  where  the  seeds  are  removed.  At  the 
gin  the  cotton  is  packed  loosely  in  large  bales.  Ordi- 
narily it  is  sold  by  the  farmer  immediately  after  gin- 
ning. Oftentimes  the  Southern  farmers  are  in  debt 
to  the  local  merchants  for  supplies  sold  to  them  on 
credit  during  the  growing  season.  These  merchants 
often  have  a  lien  on  the  cotton  as  security  and  to  them 
the  indebted  farmer  must  sell.  In  some  instances  the 
owners  of  plantations  have  maintained  their  old  rela- 
tions with  the  factors  at  the  ports  who  give  them 
financial  assistance  during  the  growing  season.  The 
cotton  from  these  plantations  is  consigned  to  these 
factors  for  sale  on  commission.  Farmers  who  are  not 
under  financial  obligations  to  a  local  merchant  or  to 
a  factor  sell  their  cotton  ordinarily  at  the  country 
point  where  it  is  ginned.  Sometimes  the  farmer 
places  it  in  a  warehouse  or  he  may  haul  it  back  to  his 


170  MARKETING  PROBLEMS 

farm,  to  be  stored  frequently  in  the  dooryard  without 
protection  from  the  weather. 

In  the  country  towns  where  the  cotton  is  ginned, 
it  is  ordinarily  sold  by  the  farmer  or  the  country  .store- 
keeper to  representatives  of  firms  of  cotton  merchants. 
These  firms  of  cotton  merchants  are  of  several  types. 
Some  are  operating  on  a  small  scale,  buying  for  resale 
in  larger  lots  to  other  merchants.  At  the  other  extreme 
are  a  few  large  firms  of  cotton  merchants,  who  buy  at 
local  points  in  the  South  and  maintain  selling  offices  in 
the  large  cotton  manufacturing  districts  in  the  United 
States  and  in  Europe.  The  cotton  merchant  pays  cash 
for  the  cotton  that  he  buys,  and  sorts  the  cotton  into 
even  running  lots  for  resale.  From  the  country  points 
cotton  moves  toward  larger  central  points  where  the 
small  cotton  merchants  frequently  sell  to  export 
buyers  or  other  large  dealers  in  raw  cotton. 

A  cotton  merchant  before  buying  a  bale  of  cotton 
from  a  farmer  extracts  a  sample  from  the  bale.  Each 
sample  weighs  from  one-half  to  one  pound,  and  often- 
times two  or  three  holes  are  cut  in  the  bale  for  sampling 
before  the  cotton  is  sold  by  the  farmer.  Each  time 
thereafter  that  the  cotton  is  offered  for  sale,  a  sample 
is  taken  for  inspection  to  determine  its  quality. 

The  following  statement  regarding  the  pulling  of 
samples  is  given  in  a  bulletin  of  the  Department  of 
Commerce  published  in  1912.1 

The  merchant,  who  as  a  rule  purchases  for  future  sale, 
retains  a  liberal  sample,  which  is  given  a  mark  or  number  cor- 
responding to  that  previously  attached  to  the  bale,  and 
which  may  be  divided  into  several  samples  to  accommodate 
prospective  buyers.  The  bulk  of  the  cotton  is  sent  to  the 
compress  for  recompression,  and  if  not  previously  sold  for 
delivery  is  stored  at  the  compress  at  fixed  charges  for  ware- 
housing, insurance,  etc.,  the  minimum  charge  being  for  one 
month.  The  warehouse  facilities  are  very  limited  and 
therefore  the  bulk  of  the  cotton  awaiting  sale  and  delivery 
is  massed  on  the  streets  in  so-called  cotton  districts,  in 
inclosed  areas  destitute  of  covering,  on  platforms  at  rail- 
road stations  and  steamship  terminals,  some  of  which  are 

^  John  M.  Carson,  "Packing  and  Marketing  of  Cotton,"  U.  S. 
Department  oj  Commerce  and  Labor,  Special  Agent  Series  No.  68,  p.  9. 


MATERIALS  AND  EQUIPMENT  171 

covered  in  whole  or  part  by  a  roof  but  none  of  which  is 
inclosed,  so  that  the  property  is  without  proper  protection. 
Recompression  does  not  insure  the  bale  not  sold  for  delivery 
against  further  sampling,  with  resultant  damage  to  the 
covering  and  loss  of  cotton. 

The  custom  of  pulling  samples  is  strongly  intrenched, 
first,  because  of  long  usage;  and  second,  because  it  is  highly 
profitable  to  merchants  and  factors.  Its  continuance  is 
naturally  desired  by  those  benefited.  The  buyer  at  points 
distant  from  production  regards  it  with  favor  because  the 
sample  furnished  assists  him  in  determining  the  quality  of 
the  cotton  or  in  confirming  the  judgment  of  his  agent.  The 
merchant  and  factor  and  other  intermediaries  favor  it 
because  each  sample  pulled  has  intrinsic  value.  The  aggre- 
gation of  these  samples  at  the  close  of  the  season  forms  a 
considerable  portion  of  a  bulk  estimated  at  100,000  bales. 
This  has  become  known  as  the  city  crop,  and  its  average 
annual  value  is  placed  at  $4,000,000.  The  income  to  indi- 
vidual middlemen  from  sales  of  samples  varies  according  to 
the  number  of  bales  passed  upon  and  pulled.  The  city 
crop  is  said  to  contribute  largely  toward  paying  running 
expenses  of  many  business  houses  that  raise  or  pull  it.  The 
statement  has  been  made  that  as  many  as  45  or  50  bales 
of  cotton  derived  from  pulling  samples  have  been  sold  at 
the  close  of  the  season  by  an  individual  concern. 

At  some  convenient  point  in  transit  or  at  the  port, 
the  cotton  is  compressed;  the  gin  bale  is  put  into  an 
hydraulic  press  which  increases  its  density  and  reduces 
its  size,  in  order  to  economize  in  handling. 

If  the  Chancellor  Manufacturing  Company,  with 
a  cotton  mill  of  60,000  spindles  manufacturing  medium 
grade  grey  cloth,  located  in  central  Georgia,  undertakes 
to  buy  its  supply  of  cotton  direct  from  farmers,  what 
does  it  gain?    What  disadvantages  does  it  incur? 


172  MARKETING  PROBLEMS 

108.  Duke  Manufacturing  Company — Buying  from 
Cotton  Merchants 

The  Duke  Manufacturing  Company  in  Fall  River, 
Massachusetts,  operates  a  mill  of  75,000  spindles  for 
the  manufacture  of  standard  print  cloth.  This  com- 
pany ordinarily  buys  its  raw  cotton  from  cotton  mer- 
chants who  have  representatives  located  in  Fall  River. 
What  advantage  is  there  to  the  Duke  Manufacturing 
Company  in  following  this  policy? 


109.  Effect  of  Introduction  of  Gin-Compressed 
Bale  on  Marketing  Methods 

An  ordinary  gin  bale  or  ' 'plantation"  bale  of  cotton 
measures  about  56  by  30  by  48  inches  and  the  density 
is  about  12  pounds  per  cubic  foot.  An  ordinary  recom- 
pressed  bale  measures  about  56  by  30  by  24  inches  and 
has  a  density  of  about  24  pounds  per  cubic  foot. 

During  recent  years  there  has  been  some  increase 
in  the  use  of  what  are  known  as  high  density  bales  and 
gin-compressed  bales.  A  gin-compressed  bale  meas- 
ures about  48  by  18  by  30  inches  or  54  by  26  by  20 
inches  and  has  a  density  of  about  30  pounds  per  cubic 
foot.i  Inasmuch  as  the  high  density  bale  cannot  be 
sampled  according  to  the  ordinary  methods,  the  cover- 
ing remains  intact  and  therefore  the  cotton  is  better 
protected  in  handling.  Some  manufacturers  have  not 
been  in  favor  of  the  high  density  bale,  because  they 
beUeve  that  the  quaHty  of  the  fiber  is  injured  by  the 
greater  compression.     This  is  a  disputed  point. 

*  John  M.  Carson,  "Packing  and  Marketing  of  Cotton,"  U.  S. 
Department  of  Commerce  and  Labor,  Special  Agents  Series  No.  5S, 
pp.  10,  19,  21. 


MATERIALS  AND  EQUIPMENT  173 

The  gin-compressed  bale,  according  to  estimates 
made  by  the  Conservation  Division  of  the  War  Indus- 
tries Board  during  the  war,  if  universally  used  in  the 
South,  would  yield  a  saving  of  272,700  car  loads  of 
freight  space  in  a  year.  It  would  also  yield  a  saving 
of  about  170,000  tons  of  steel  for  ties  and  also  a 
substantial  quantity  of  bagging. 

How  would  the  general  introduction  of  the  gin- 
compressed  bale  necessarily  affect  the  methods  by 
which  cotton  is  bought  and  sold  in  the  South? 


110.  Watkins    &    Company — Cooperative    Cotton 
Warehouses 

The  following  statement  is  quoted  from  a  bulletin 
of  the  United  States  Department  of  Agriculture  :i 

Financing  the  cotton  crop  is  one  of  the  most  difficult, 
and  at  the  same  time  one  of  the  most  important  problems 
confronting  the  southern  farmer  and  the  southern  business 
man.  In  the  light  of  all  the  facts  it  seems  reasonable  to 
state  that  but  little  cotton  would  be  stored  or  insured  if  it 
were  not  necessary  to  do  so  in  order  to  negotiate  loans  with 
cotton  as  collateral.  The  banks  are  entirely  willing  to 
advance  money  on  cotton  on  liberal  terms  when  it  is  properly 
stored  and  insured,  but  they  are  not  always  able  to  advance 
these  necessary  funds.  Even  in  years  when  prices  are  satis- 
factory, and  l)ut  little  cotton  is  held,  it  takes  enormous  sums 
of  money  to  finance  the  marketing  of  the  crop,  and  when  the 
market  is  unsatisfactory  and  many  persons  wish  to  hold 
their  cotton  for  better  prices,  it  is  almost  impossible  for  the 
present  banking  institutions  to  supply  the  necessary  funds. 
The  farmer  frecjuently  has  no  operating  capital  and  that  of 
the  bank  is  limited.  Consequently,  when  a  market  for 
cotton  practically  disappears,  it  is  impossilile  for  the  banks 
of  the  cotton-producing  section  to  meet  their  obligations. 
Success  in  developing  an  adequate  and  efficient  system  of 

'Robert  L.  Nixon,  "Cotton  Warehouses,"  U.  S.  Department  of 
Agriculture,  Bulletin  No.  216,  pp.  2-5,  10-12. 


174  MARKETING  PROBLEMS 

storage  houses  depends  largely  upon  obtaining  sufficient 
capital  to  finance  the  cotton  crop.  Many  letters  from  bank- 
ers, warehousemen,  and  business  men  generally,  indicate  an 
entire  willingness  and  even  eagerness  on  their  part  to  erect 
storage  houses  of  sufficient  capacity,  if  only  money  could  be 
obtained  in  order  to  enable  farmers  and  others  to  hold  cotton. 
It  would  seem  that  the  banks  would  increase  their  capital 
stock  to  such  an  extent  that  they  would  be  in  position  to 
advance  all  the  funds  needed.  But  it  must  be  remembered 
here,  as  stated  in  connection  with  storing  cotton,  that  it  is 
only  when  the  market  is  unsatisfactory  that  the  farmer  needs 
to  hold  his  cotton  and  therefore  needs  an  unusual  amount 
of  capital.  The  banks,  of  course,  can  not  keep  on  hand 
unlimited  funds  to  meet  this  occasional  demand.  It  also 
must  be  remembered  that  the  farmer  is  not  always  reason- 
able in  his  demand  for  funds  at  such  a  time.  When  cotton 
is  bringing  13  or  14  cents  per  pound  he  often  sells  his  crop 
as  fast  as  it  is  ginned  without  reference  to  the  disastrous 
effect  it  may  have  on  the  market,  spends  the  proceeds,  and 
devotes  all  his  energies  to  raising  a  large  crop  for  the  fol- 
lowing year.  While  the  cotton  is  growing  he  spends  for  his 
supplies  on  the  basis  of  a  full  crop  for  which  he  expects  to 
receive  the  maximum  price.  When,  because  of  overpro- 
duction or  unusual  pressure  on  the  market,  the  price  falls 
appreciably,  he  finds  that  the  merchant's  equity  in  the 
cotton  is  greater  than  its  cash  value.  He  then  expects  the 
banks  to  advance  him  money  on  the  basis  of  the  prices  that 
prevailed  when  conditions  were  favorable,  or  perhaps  on 
the  cost  of  production.  While  cotton  is  recognized  as  the 
best  collateral,  it  will  not  be  accepted  by  business  men  on 
such  conditions. 


It  can  readily  be  seen  that  one  of  the  greatest  needs  of 
the  cotton  farmer  is  to  get  away  from  the  present  credit 
system.  Many,  especially  those  of  the  tenant  class,  pay  the 
supply  merchant  an  advance  of  from  25  to  35  cents  on  a 
dollar's  worth  of  supplies,  and  these  supplies  are  actual 
necessities.  These  accounts  ordinarily  run  from  six  to 
eight  months.  Such  exorbitant  rates  of  interest  would  be 
disastrous  to  any  class  of  people.  When  the  crop  is  har- 
vested the  farmer  disposes  of  his  cotton  and  settles  his 
accounts  with  the  proceeds,  provided,  of  course,  that  he 
receives  sufficient  funds  for  this  purpose.  Then  it  is  usually 
necessary  for  him  to  mortgage  his  next  year's  crop  to  the 
supply  merchant  in  order  to  obtain  credit,  which  is  neces- 
sary to  enable  him  to  live  while  the  crop  is  being  made. 
While  it  is  difficult  to  see  how  this  situation  can  be  remedied, 
owing  to  the  fact  that  these  tenants  have  no  means  of  living 
while  the  crop  is  being  made  without  trading  with  supply 


MATERIALS  AND  EQUIPMENT  175 

merchants,  it  does  seem  that  the  situation  would  be  improved 
greatly  by  establishing  a  system  of  warehouses  and  encourag- 
ing the  tenants  to  store  such  cotton  as  is  not  absolutely 
necessary  to  settle  their  accounts.  If  this  plan  should  be 
pursued  for  two  or  three  years,  while  economy  in  living  was 
exercised,  many  could  eventually  free  themselves  from  the 
present  system. 

The  merchant  is  almost  as  helpless  as  the  farmer.  He 
advances  supplies  while  expecting  cotton  to  bring  a  fairly 
good  price.  In  most  cases  he  has  bought  his  stock  on  time 
and  cannot  meet  his  own  obligations  until  the  farmers' 
accounts  are  paid.  Whenever  the  price  is  so  low  that  the 
farmer  fails  to  meet  his  obligations,  the  merchant  is  likely 
to  be  seriously  embarrassed.  Late  in  1914,  for  instance, 
many  farmers  refused  positively  to  sell  their  cotton,  and 
many  of  them  failed  to  meet  their  obligations,  thus  making 
it  especially  hard  on  the  merchant.  When  the  price  is 
unusually  low,  the  merchant  can  not  afford  to  "close  out" 
the  tenant.  The  cotton,  if  thrown  on  the  market,  would 
not  bring  enough  to  settle  the  account.  If  the  merchant 
insisted  on  selling  the  cotton  he  necessarily  would  lose  much 
of  the  money  due  him. 

It  is  equally  true  that  the  local  banker  is  helpless  in 
such  a  situation.  His  bank  advances  some  money  to  local 
merchants  and  some  to  the  farmers.  He  has  borrowed  most 
of  this  money  from  some  larger  institution  which  is  usually 
located  outside  of  the  cotton-producing  section.  He  is 
supposed  to  pay  this  money  back  at  the  time  that  cotton  is 
picked.  When  the  farmer  fails  to  meet  his  obligation  the 
merchant  naturally  finds  it  difficult  to  pay  his  banker. 
Then- the  local  bariker  is  dependent  upon  the  mercy  of  the 
larger  institution. 

A  well-organized  system  of  cotton  warehouses  would  be 
of  the  greatest  assistance  to  the  farmer,  the  supply  mer- 
chant, and  the  local  banker  in  financing  the  cotton  crop, 
especially  in  tiding  over  an  emergency.  There  is  a  serious 
need  for  warehouses  whose  receipts  would  be  accepted  as  an 
absolute  guarantee  that  a  certain  amount  of  cotton  of  a 
definite  grade  and  in  marketable  condition  had  been  stored 
with  the  warehouse  company.  Under  such  conditions  it 
would  be  very  easy  for  the  farmer  to  store  his  cotton  and 
offer  the  receipts  to  his  supply  merchant  as  collateral  for 
extending  the  time  in  which  his  account  nmst  be  paid.  The 
merchant  in  turn  could  surrender  these  receipts  to  the  local 
banker  and  extend  the  time  of  his  loan.  The  local  banker 
would  then  use  these  receipts  in  a  similar  way  to  extend  the 
time  of  his  loan  with  the  larger  institution.  In  practically 
every  instance  the  large  banker  would  be  glad  to  extend 
the  time  of  payment  when  these  receipts  were  offered  as 


176  MARKETING  PROBLEMS 

collateral.  In  many  instances  the  rate  of  interest  would 
be  greatly  reduced.  This  is  one  of  the  very  important  func- 
tions of  an  efficient  system  of  warehouses,  and  the  need  of 
Buch  a  system  is  extremely  urgent. 


While  an  attempt  has  been  made  to  show  that  in  storage 
capacity  the  warehouses  now  in  use  are  fully  adequate,  it 
is  not  meant  to  convey  the  impression  that  those  who  pro- 
duce cotton  can  get  proper  and  efficient  warehouse  service. 
This  is  far  from  the  case.  Most  of  the  best  storage  houses 
belong  to  the  cotton  mills  and  to  cotton  factors  or  commis- 
sion merchants.  The  mills  have  built  their  warehouses  for 
storing  the  cotton  which  they  buy  for  spinning.  They  were 
never  intended  as  public  storage  houses,  and  they  are  avail- 
able for  such  use  in  very  few  instances.  The  factors  have 
not  built  warehouses  for  the  purpose  of  doing  a  storage  busi- 
ness, but  in  order  to  aid  in  their  regular  transactions.  But 
few  of  these  persons  would  build  warehouses  for  the  storage 
fees  they  collect,  but  they  are  forced  to  operate  the  ware- 
houses in  order  to  handle  the  cotton  which  is  consigned  to 
them  for  sale.  It  will  be  seen,  therefore,  that  but  few  of  the 
best  storage  houses  now  in  use  are  available  to  the  farmer 
unless  he  is  willing  to  ship  his  cotton  to  the  factor  and  pay 
him  a  fee  for  selling  it,  in  addition  to  regular  storage  charges. 
Many  farmers  are  averse  to  shipping  their  cotton  to  another 
town  and  consigning  it  to  a  factor  or  commission  merchant. 
They  usually  expect  to  receive  the  money  at  the  time  the 
cotton  is  delivered.  Many  farmers  are  reluctant  to  pay 
any  charges  whatever.  This  attitude  is  unfortunate,  for  it 
eliminates  them  from  participation  in  the  use  of  the  best 
storage  facilities. 

The  service  rendered  by  the  small  warehouses  in  the 
primary  markets  is  almost  universally  unsatisfactory.  The 
warehouse  owners  are  not  to  blame  for  this  poor  service. 
The  cost  of  handling  is  much  greater  than  in  the  case  of 
larger  establishments,  and  the  insurance  rate  is  usually  four 
or  five  times  as  great  as  in  the  standard  warehouses  in  larger 
towns.  One  might  at  first  be  inclined  to  think  that  they 
should  erect  costly  buildings,  but  in  most  cases  this  would 
not  pay,  for  there  is  not  a  sufficient  volume  of  business. 
Very  few  farmers  will  store  their  cotton  when  the  market 
price  is  fairly  satisfactory.  A  good  storage  building  might 
be  erected  in  a  small  town  and  a  fair  profit  be  made  for  one 
year,  but  it  might  be  four  years  or  even  longer  before  it 
would  again  be  well  patronized.  The  chances  are  that  dur- 
ing this  period  the  fees  collected  would  not  pay  the  cost  of 
operation.  The  investor  would  lose  all  of  the  money  made 
in  one  year  in  addition  to  the  interest  on  the  funds  invested 


MATERIALS  AND  EQUIPMENT  177 

in  the  building.  The  result  is  that  most  of  the  warehouses 
erected  in  such  towns  are  owned  primarily  by  merchants  or 
cotton  buyers  for  use  in  connection  with  their  business. 
They  are  not  intended  for  the  use  of  farmers,  and  when  a 
year  of  very  low  prices  comes  they  are  not  in  position  to 
render  the  service  that  the  farmer  expects. 

From  the  foregoing  it  would  seem  that  the  most  satis- 
factory solution  of  the  situation  would  be  for  the  farmers  to 
form  cooperative  associations  and  build  their  own  storage 
houses.  They  can  not  expect  others  to  invest  thousands  of 
dollars  in  storage  houses  that  will  lie  idle  for  several  years 
and  make  a  profit  for  only  one  year.  No  business  men  will 
invest  their  money  in  such  a  way.  Farmers  must  build  their 
own  storage  houses  or  remain  dependent  upon  the  mer- 
chants and  cotton  factors.  It  would  seem  also  that  the 
mills  and  trade  in  general  should  encourage  the  preserva- 
tion of  cotton  by  storage  by  discriminating  individually 
against  "country  damaged"  cotton.  This  would  put  a 
premium  on  cotton  in  good  condition  and  would  thus  tend 
to  encourage  storage. 

It  has  been  stated  that  in  the  aggregate  storage  capacity 
present  facilities  are  ample  but  the  warehouses  are  not 
properly  distributed.  The  investigation  showed  that  in 
many  places  in  every  State,  including  those  with  the  greatest 
number  of  warehouses,  thousands  of  bales  of  cotton  are 
"stored"  on  the  streets  and  platforms,  or  left  about  gins 
and  farms,  while  all  the  warehouses  in  use  are  filled  to  their 
greatest  capacity.  In  other  sections  of  the  same  State, 
frequently  in  the  same  county,  warehouses  were  found  that 
are  used  very  little.  This  indicates  that  very  poor  judgment 
has  been  exercised  in  the  location  of  storage  houses  and  that 
those  who  have  cotton  to  be  protected  can  not  get  the  service 
which  might  be  expected. 

Discuss  the  proposed  solution  from  the  standpoint 
of  Watkins  &  Company  a  firm  of  cotton  merchants  that 
sends  its  buyers  to  the  local  markets  in  the  South  and 
maintains  sales  offices  in  various  cotton  manufacturing 
districts  in  the  United  States  and  Europe. 


178  MARKETING  PROBLEMS 

111.  Union  Warehouse  Corporation 

In  1919,  it  was  announced  that  the  Union  Ware- 
house Corporation  was  being  organized  for  handling 
raw  cotton.  It  was  to  have  $20,000,000  capital  stock. 
The  purpose  was  to  purchase,  lease,  and  otherwise 
acquire  existing  warehouses,  remodeling  them,  and 
also  to  erect  such  structures  at  important  northern 
and  southern  points  for  the  storage  of  cotton.  It  was 
anticipated  that  the  corporation  would  engage  even- 
tually in  compressing,  baling,  banding,  and  covering 
cotton  in  a  manner  that  would  insure  against  damage 
in  transit. 

The  management  of  the  company,  it  was  stated, 
was  to  be  in  control  of  a  board  of  directors  chosen  from 
the  various  branches  of  the  cotton  industry  so  that 
every  phape  of  the  industry  would  have  one  or  more 
representatives  thereon.  For  the  managing  head,  an 
experienced  cotton  warehouseman  of  the  South  was  to 
be  chosen.  The  headquarters  of  the  company  were  to 
be  in  New  York  City. 

All  warehouses  were  to  be  constructed  on  the  "unit 
system."  Each  unit  would  be  capable  of  storing  about 
10,000  bales.  Thus  the  warehouses  could  be  expanded 
at  a  minimum  cost  to  meet  the  requirements  of  future 
growth.  The  cotton  was  to  be  stored  in  them  so  as 
to  secure  the  lowest  rate  of  insurance.  In  general  the 
warehouses  were  to  be  constructed  and  operated,  it 
was  said,  so  that  the  receipts  issued  for  goods  stored 
therein  would  be  prime  evidence  of  ownership,  weight, 
grade,  and  deliverability  and  would  be  accepted  as 
collateral  at  all  banks  that  made  a  practice  of  loaning 
money  on  cotton.  Negotiations  were  on  foot,  further- 
more, with  British  banks  and  buyers  of  cotton  to  the 
end  that  receipts  for  goods  stored  in  one  of  the  ware- 
houses of  the  Union  Warehouse  Corporation  would  be 
acceptable  as  collateral  in  England  at  banks,  thus 
facilitating  export  transactions. 

It  was  stated  that  this  promised  to  be  one  of  the 
largest  cotton  warehouse  companies  in  the  world.  It 
was  proposed  to  start  with  an  initial  capacity  of 
1,500,000  bales  of  which  500,000  bales  were  to  be  in 


MATERIALS  AND  EQUIPMENT 


179 


existing  warehouses  that  were  to  be  purchased.  The 
ultimate  capacity  was  to  be  about  3,000,000  bales. 
Points  at  which  eventually  the  corporation  planned  to 
establish  warehouses  were  as  follows : 


City 

Dallas  or  Fort  Worth,  Texas 

Waco,  Texas 

Houston  or  Texas  City,  Texas 

Oklahoma  City  or  Muskogee,  Okla .    ... 

Little  Rock  or  Pine  Bluff,  Ark 

Clarksdale,     Greenville,     Rosedale,     or 

Greenwood,  Mississippi 

Memphis,  Tennessee 

Montgomery  or  Birmingham,  Ala 

Mobile,  Alabama 

Savannah  or  Brunswick,  Georgia 

Greenville  or  Columbia,  S.  C 

Providence,  Rhode  Island '. 

Fall  River,  Massachusetts 

Framingham  or  Mansfield,  Mass 


Initial 

Ultimate 

Capacity 

Capacity 

100,000 

200,000 

30,000 

00,000 

200,000 

400,000 

50,000 

100,000 

50,000 

100,000 

40,000 

80,000 

300,000 

600,000 

50,000 

100,000 

100,000 

200,000 

100.000 

200,000 

40,000 

80,000 

100,000 

200,000 

100,000 

200,000 

200,000 

400,000 

What  advantages  in  this  plan  would  probably  con- 
tribute to  the  success  of  the  undertaking?  What  were 
the  obstacles  to  be  overcome? 


112.  Central  Bill  of  Lading  Bureau 

If  a  farmer  decides  to  hold  his  cotton  before  selling 
it,  he  may  put  it  into  a  local  warehouse,  provided  one 
is  available,  and  with  the  warehouse  receipt  as  security 
obtain  a  loan  from  a  local  bank.  When  a  merchant 
buys  cotton  from  farmers,  he  ordinarily  places  it  in  a 
warehouse,  if  it  is  not  to  be  shipped  immediately,  and 
uses  the  warehouse  certificates  as  security  for  a  loan. 
When  shipment  is  made,  the  railroad  bill  of  lading 
takes  the  place  of  the  warehouse  receipt  as  the  security 
for  the  loan.     The  movement  of  the  cotton  crop  is 


180  MARKETING  PROBLEMS 

largely  financed  by  means  of  bank  loans  secured  by 
warehouse  certificates  or  railroad  bills  of  lading. 

The  method  of  financing  foreign  shipments  was 
briefly  described  as  follows  in  an  article  in  the  Railvmy 
Age  Gazette.  ^ 

When  the  cotton  arrives  at  the  compresses,  in  many 
cases  owned  by  the  railways,  the  local  bills  of  lading  are,  or 
should  be,  surrendered  in  exchange  for  compress  receipts, 
which  are  in  turn  exchanged  for  foreign-order  bills  of  lading 
drawn  to  the  order  of  the  cotton  shipping  firm  and  calling 
for  the  shipment  of  the  cotton  to  Liverpool  or  some  other 
foreign  city.  These  bills  of  lading  are  attached  to  a  draft 
drawn  by  the  cotton  shipping  firm  on  a  Liverpool  bank,  for 
instance,  and  this  draft  with  its  bills  of  lading  is  in  turn 
attached  to  a  bill  of  exchange  on  New  York  on  which  the 
local  Texas  or  Mississippi  bank  advances  money  to  the 
cotton  shipping  firm.  These  two  drafts,  the  one  drawn  on 
New  York  being  indorsed  by  the  local  bank,  are  sent  to 
the  local  bank's  correspondent  in  New  York  City,  where  the 
New  York  bank  pays  its  correspondent's  draft.  This  closes 
the  transaction  as  far  as  the  local  bank  is  concerned;  its 
liability  has  been  cancelled  and  it  has  received  the  money 
that  it  advanced  to  the  cotton  shipper.  The  New  York  bank 
is  now  in  the  position  of  having  advanced  the  money  to  the 
cotton  shipper  direct,  and  holds  as  security  a  draft  on  a 
Liverpool  bank  with  bills  of  lading  attached.  It  then  ships 
the  drafts  with  the  bills  of  lading  to  Liverpool,  and  when  the 
Liverpool  firm  has  accepted  the  draft  the  New  York  bank's 
liability  does  not  cease.  It  simply  has  the  added  protection 
of  the  foreign  banker's  acceptance.  But  between  the  time 
that  the  New  York  bank  has  paid  its  correspondent's  draft 
and  the  time  that  the  Liverpool  bank  accepts  the  draft 
drawn  on  it  by  the  cotton  shipper  the  New  York  bank  is 
responsible  for  the  entire  amount  that  has  been  advanced, 
and  has  as  its  only  security  the  bills  of  lading.  The  difii- 
culty  at  present  is  that,  in  the  first  place,  the  New  York 
banks  don't  want  to  accept  this  responsibility,  and,  in  the 
second  place,  the  foreign  bankers  have  become  so  suspicious 
of  the  genuineness  of  the  bills  of  lading  that  they  refuse  to 
accept  drafts  unless  the  American  bankers  will  virtually 
guarantee  the  genuineness  of  these  bills. 

The  difficulty  referred  to  in  the  latter  part  of  this 
quotation   arose   from   the   so-called   Knight- Y^ancey 

1  Railway  Age  Gazette,  July  15,  1910,  p.  119.  See  also  J.  J.  Arnold, 
"Financing  of  Cotton,"  An7ials  of  American  Academy  of  Social  and 
Political  Science,   September,    1911. 


MATERIALS  AND  EQUIPMENT  181 

case.i  This  firm  of  cotton  merchants  failed  April  20th, 
1910,  with  habihties  of  over  $5,000,000  and  assets  of 
$1,400,000.  It  was  stated  at  the  time  that  this  firm 
had  operated  by  means  of  spurious  bills  of  lading. 
A  spurious  bill  of  lading  was  used  as  a  means  of  obtain- 
ing money  with  which  the  firm  went  out  and  bought 
cotton.  The  cotton  was  then  shipped  for  delivery  on 
the  forged  bill  of  lading.  The  firm  extended  its  opera- 
tions, however,  until  insolvency  resulted,  and  the 
English  banks  which  held  drafts  secured  by  these 
spurious  bills  of  lading  were  said  to  have  suffered 
heavy  losses. 

In  April,  1911,  a  plan  was  adopted  to  prevent,  if 
possible,  the  recurrence  of  the  use  of  spurious  bills  of 
lading.  This  plan  provided  for  the  establishment  in 
New  York  of  a  Central  Bureau  to  which  all  advices  of 
bills  of  lading  issued  were  to  be  sent.  The  Central 
Bureau  was  opened  September  1st,  1911.  According 
to  the  plan,  the  shipper  received  the  bill  of  lading  with 
a  vaUdation  certificate  attached.  The  railroad  agent 
forwarded  to  the  Central  Bureau  a  signed  copy  of  the 
bill  of  lading  and  a  duphcate  validation  certificate. 
The  railroad  agent  sent  to  the  auditor  of  his  railroad 
a  triphcate  validation  certificate.  The  Central  Bureau 
filed  the  bill  of  lading  by  the  railroad,  town,  and  num- 
ber, and  notified  the  railroad  that  it  had  received  a 
copy  of  the  bill  of  lading.  The  shipper  filled  out  a 
blank  to  be  sent  to  the  Central  Bureau  by  the  buyer 
of  the  bill  of  exchange.  The  master  receipts  issued  by 
steamship  companies  were  sent  to  the  Central  Bureau 
to  complete  the  file.  The  Central  Bureau  was  to  give 
notice  when  fraud  was  detected.  One  hundred  and 
sixteen  railroads  signed  the  agreement  with  the  Central 
Bureau  and  the  bankers'  association.  It  was  expected 
that  the  constant  scrutiny  of  the  bills  of  lading  for- 
warded to  the  Central  Bureau  and  the  checking  up  of 
inaccuracies  with  the  railroads  would  prevent  further 
use  of  spurious  bills  of  lading.     This  Central  Bureau 

*  Notes  on  this  case  were  given  in  the  current  issues  of  the  Com- 
mercial and  Financial  Chronicle. 


182  MARKETING  PROBLEMS 

was   to   be   operated   by   European   dealers   at   their 
expense.^ 

In  September,  1913,  it  was  stated  that  very  little 
attention  was  being  paid  to  the  Bureau  by  the  foreign 
exchange  bankers  and  brokers  interested  in  cotton 
bills  of  lading.  It  was  stated  further  that  only  two  to 
five  per  cent  of  the  total  bills  issued  were  thus  verified. 
How  is  this  to  be  explained? 


113.  Emerson    &    Company — Use    of    New    York 
Cotton  Exchange 

Emerson  &  Company,  cotton  merchants  in  Boston, 
accept  an  order  from  a  manufacturer  for  5,000  bales 
of  one-inch  Texas  middhng  cotton  at  a  specified  price. 
Should  Emerson  &  Company  use  the  New  York  Cotton 
Exchange  in  connection  with  this  transaction? 


114.  Sebago  Mills — Hedging 

The  Sebago  Mills,  a  cotton  manufacturing  com- 
pany with  a  large  plant  located  in  New  Hampshire, 
buy  their  supply  of  cotton  during  the  season  as  condi- 
tions in  the  raw  cotton  market  seem  to  warrant.  If 
the  purchases  of  raw  material  during  the  season  are  not 
adjusted  closely  to  the  current  manufacturing  require- 
ments of  the  mills,  how  can  this  company  hedge  its 
purchases?  Why  is  hedging  not  commonly  practiced 
by  cotton  mills? 

*  Commercial  and  Financial  Chronical,  September  20,  1913,  p.  778. 


MATERIALS  AND  EQUIPMENT  183 

115.  LoNGYEAR  &  Black — Financing  Cotton 
In  Storage 

Longyear  &  Black,  export  merchants,  buy  10,000 
bales  of  middling  cotton  in  Georgia  in  November. 
This  cotton  is  shipped  to  Savannah  and  stored  there. 
To  finance  their  operations,  these  merchants  seek  a 
loan  from  a  bank  with  the  warehouse  receipt  as  security. 
How  will  the  value  of  this  security  be  affected  if  the 
\otton  is  hedged? 


116.  Nantucket   Company — Market   Information 

The  Nantucket  Company  operates  a  mill  of  120,000 
spindles  in  New  Bedford,  Massachusetts.  It  manu- 
factures fine  white  goods,  using  high-grade,  inch-and- 
a-quarter  cotton.  \ATiat  information  does  the  Treasurer 
of  this  mill  need  to  guide  him  in  purchasing  his  raw 
material?     When  does  he  need  this  information? 


117.  Boston  Wool  Market 

The  annual  production  of  raw  wool'  in  the  United 
States  in  recent  years  has  been  about  290,000,000 
pounds.  This  is  about  lO^o  of  the  total  world  pro- 
duction.   The  domestic  production  of  raw  wool  is 

*  For  additional  iiiforniation  on  the  raw  wool  trade,  see  P.  T. 
Cherinton,  The  Wool  Induatri/;  iiho  F.  R.  Marshall  and  L.  L.  Heller, 
"The  Wool  Grower  and  the  Wool  Trade,"  U.  S.  DeiKirtmcnt  of  Agri- 
culture, Bulletin  No.  206,  and  Bulletin  of  tlie  National  Association  of 
Wool  Manufacturers. 


184  MARKETING  PROBLEMS 

about  one-half  of  the  domestic  consumption  in  the 
United  States.  Over  one-half  of  the  annual  clip  in  the 
United  States  is  grown  in  the  far  West: — Wyoming, 
Montana,  Idaho,  New  Mexico,  Oregon,  California, 
Utah,  Colorado,  Nevada,  Arizona.  The  wool  grown 
in  this  section  is  known  as  territory  wool.  It  is  the 
product  of  a  specialized  industry.  The  size  of  the 
average  flock  of  sheep  in  this  section  is  about  1,000. 
There  are  numerous  instances,  however,  of  larger 
flocks  of  5,000,  and  even  up  to  10,000  sheep. 

In  the  Middle  West,  centering  around  Ohio,  is 
another  wool  growing  region.  The  product  of  this 
section  is  known  as  fleece  wool.  Here  wool  growing 
is  incidental  to  general  farming.  The  average  size  of  a 
flock  in  the  fleece  wool  district  is  under  50.  The  fleece 
wool  is  of  different  grade  and  is  used  for  different 
purposes  than  the  territorial  wool. 

In  each  district  the  quality  of  wool  from  the  same 
flock  varies  from  season  to  season,  according  to  weather 
and  feed  conditions. 

In  a  single  fleece,  furthermore,  there  are  several 
qualities  of  wool  and  a  wide  variation  in  the  length 
of  the  fiber  in  different  parts  of  the  fleece.  Another 
peculiarity  of  the  wool  trade  is  the  shrinkage  that 
takes  place  before  manufacturing.  Some  fleeces  shrink 
50%  of  their  original  weight;  others  as  high  as  70%. 
This  shrinkage  is  the  result  of  the  extraction  of  the 
animal  fat  or  grease  from  the  fiber. 

In  the  territorial  wool  district  the  wool  is  ordinarily 
sold  immediately  after  shearing.  It  is  hauled  by  the 
grower  to  the  shipping  point,  such  as  Billings,  Mon- 
tana, Great  Falls,  Rawlins,  Phoenix,  and  similar  points. 
At  these  towns  buyers  employed  by  wool  merchants 
in  Boston  and  Philadelphia  congregate.  They  pur- 
chase the  wool  ordinarily  in  the  grease  after  inspection. 
In  some  instances  the  wool  is  sold  on  a  scoured  basis, 
in  which  case  the  grower  assumes  the  risk  attendant 
upon  the  uncertainty  as  to  the  degree  of  shrinkage. 
The  grower  is  paid  cash  by  the  merchant. 

From  the  market  points  in  the  Far  West,  the  wool 
is  shipped  immediately  to  the  wool  merchants  in  the 


MATERIALS  AND  EQUIPMENT  185 

East,  who  maintain  large  warehouses  for  the  storage 
of  their  purchases.  The  wool  merchants  classify  and 
grade  the  wool  in  their  warehouses. 

The  trade  in  fleece  wool  is  carried  on  similarly, 
except  that  a  large  portion  of  the  fleece  wool  is  sold 
by  the  growers  to  country  merchants,  either  general 
storekeepers  or  local  wool  merchants,  who  in  turn  sell 
to  the  buyers  from  the  Eastern  wool  houses. 

In  some  years  when  the  prices  offered  at  the  country 
points,  either  in  the  territorial  district  or  in  the  fleece 
wool  district,  do  not  seem  satisfactory  to  the  growers, 
the  wool  is  consigned  to  merchants  or  commission 
houses  in  the  East  to  be  held  until  the  growers  give 
instructions  for  its  sale. 

Why  does  the  wool  market  center  at  Boston? 


118.    Early  Contracting  in  the  Wool  Trade 

In  some  seasons  numerous  wool  merchants  adopt 
a  pohcy  of  contracting  with  growers  several  months 
before  shearing,  usually  in  the  fall  or  early  winter,  for 
the  clip  of  the  following  spring  season.  This  is  some- 
times called  "buying  on  the  back."  In  a  trade  report 
published  in  Boston,  November,  1919,  the  following 
statement  was  made : — 

A  danger  is  that  the  scarcity  and  the  abnormal  prices 
that  are  being  paid  in  this  market  may  lead  to  premature 
contracting  of  the  coining  territorial  clip.  Contracting  was 
very  heavy  in  the  last  two  months  of  191G  and  in  at  least 
one  recent  year  the  end  of  October  has  seen  a  fair  percentage 


186  MARKETING  PROBLEMS 

of  the  territorial  clip  involved.  Conservative  wool  men 
always  have  deprecated  this  early  contracting  and  un- 
doubtedly will  continue  to  do  so. 

Why  should  this  practice  be  deprecated? 


119.     Pejepscot  Manufacturing  Company — Wool 
Auctions 

The  London  Wool  Auctions  are  one  of  the  prom- 
inent institutions  in  the  wool  trade  of  the  world^. 
These  auctions  have  been  in  regular  operation  for  a 
period  of  eighty-five  years.  Ordinarily  there  are  six 
series  of  sales  each  year — January,  March,  May,  July, 
September,  and  November. 

The  wool  that  is  offered  for  sale  at  these  auctions 
is  English  Colonial  wool,  Australian  wool  predominat- 
ing. No  domestic  wool  and  no  South  American  wool 
is  sold  at  these  London  auctions.  The  wool  that  is 
sold  is  ordinarily  consigned  to  the  order  of  financial 
houses  in  London,  who  have  made  advances  to  the 
growers.  The  shipping  facilities  of  London  have  been 
one  of  the  reasons  for  the  development  of  this  business. 

For  a  period  of  at  least  ten  years  before  the  war, 
the  quantity  of  wool  sold  at  the  London  auctions  had 
been  practically  constant,  in  the  neighborhood  of 
700,000  to  800,000  bales  per  year.  During  this  time 
the  exports  of  wool  from  Australia  and  South  Africa 
had  heavily  increased,  but  with  the  increase  in  the 
volume  of  exports  there  had  also  developed  more  direct 

'  The  best  description  of  the  London  Wool  Auctions  is  given  in 
J.  H.  Clapham,  Woollen  and  Worsted  Industries,  pp.  90-98. 


MATERIALS  AND  EQUIPMENT  187 

buying  in  the  Colonial  markets  by  English  wool  firms 
and  especially  by  wool  merchants  and  manufacturers 
of  the  continental  countries  of  Europe. 

These  auctions  are  attended  by  representatives  of 
English  wool  merchants,  Continental  wool  merchants, 
and  American  wool  merchants  and  manufacturers. 
They  are  open  to  anyone  who  wishes  to  buy.  The 
prospective  buyers  look  over  the  catalogues  of  samples 
that  are  prepared  by  the  selling  brokers.  These 
inspections  of  the  samples  are  indispensable.  At 
these  auctions  the  bidding  is  to  some  extent  by  wool 
merchants  and  manufacturers  personally,  but  more 
frequently  their  bids  are  made  through  buying  brokers. 
The  buying  brokers  are  employed  especially  by  those 
buyers  who  do  not  purchase  in  very  large  quantities. 
The  buying  broker  receives  a  commission  of  34%*  The 
terms  are  cash.  Payment  is  to  be  made  within  seven 
days,  and  the  wool  must  be  removed  from  the  ware- 
house within  a  week. 

It  has  been  proposed  from  time  to  time  that  a 
similar  institution  should  be  established  in  Boston, 
in  order  to  give  that  city  greater  eminence  in  the  wool 
trade  of  the  world.  What  attitude  toward  this  pro- 
posal should  be  taken  by  the  president  of  the  Pejepscot 
Manufacturing  Company  located  in  Massachusetts? 
The  company  purchases  large  quantities  of  domestic 
and  foreign  wool  of  Australian  grade  through  the 
regular  channels. 


188  MARKETING  PROBLEMS 

120.    Cattle  Loan  Companies 

The  beef  supply  of  the  United  States  comes  from 
two  main  sources: — (1)  dairy  cattle;  (2)  range  and 
ranch  cattle. 

Dairy  cattle  are  in  part  slaughtered  by  local  butch- 
ers, and  the  beef  is  sold  locally  or  shipped  to  nearby 
markets.  In  some  districts,  especially  in  the  Middle 
West,  dairy  cattle  are  sold  by  the  farmers  to  local 
shippers  for  shipment  to  the  large  primary  markets. 
During  the  last  few  years  several  hundred  cooperative 
live-stock  shipping  associations  have  been  organized 
in  the  Middle  West,  in  competition  with  the  local 
shippers!. 

A  large  portion  of  the  supply  of  cattle  for  the  big 
packing  plants  at  the  primary  markets  is  furnished  by 
range  and  ranch  cattle.  These  cattle  are  raised  by 
farmers  who  specialize  in  this  business.  In  the  mar- 
keting of  these  cattle,  frequently  there  are  several 
steps.  In  normal  years,  for  example,  large  numbers  of 
young  cattle  in  Texas  are  sold  for  shipment  to  the 
ranges  in  the  northwestern  states,  such  as  Montana 
and  the  Dakotas.  Other  Texas  cattle  are  sold  to  the 
local  packing  plants,  for  shipment  to  the  corn  belt,  or 
to  the  primary  markets  in  the  Middle  West.  Cattle 
that  have  been  raised  or  grass-fed  on  the  northern 
ranges  are  shipped  usually  in  the  fall  to  the  primary 
markets.  Some  of  those  which  are  shipped  to  the 
primary  markets  are  sold  there  to  feeders  and  reshipped 
to  the  feeding  pens  in  the  corn  belt  for  further  fatten- 
ing. These  shipments  from  the  ranches  and  ranges 
are  commonly  in  train  loads.    It  is  a  bulk  business. 

The  farmers  and  cattlemen  who  buy  cattle  for 
feeding  in  the  corn  belt  keep  the  cattle  in  their  posses- 
sion during  three  or  four  months  in  the  winter  and 
spring  in  order  to  prepare  them  for  market.  The 
feeding  district  is  in  the  localities  where  a  large  supply 
of  corn  is  grown  and  in  fairly  close  proximity  to  the 
primary  markets. 

»  U.  S.  Department  of  Agriculture,  Farmers'  Bulletin  No.  718, 
"Cooperative  Xive  Stock  Shipping  Associations." 


MATERIALS  AND  EQUIPMENT  189 

The  primary  markets  for  cattle  are  the  following • : — 

RECEIPTS     AND     DISPOSITION     OF     CATTLE     AT 
PUBLIC   STOCKYARDS,    1919 


Stocker  and 

Market 

Receipts 

Local 

P'eeder 

Total 

Slaughter 

Shipments 

Shipments 

Chicago 

4,253,408 

3,032,001 

508,793 

1,221,407 

Denver 

823,727 

174,350 

483,326 

642,496 

East  St.  Louis. 

1,472,830 

1,018,740 

234,045 

454,150 

Fort  Worth . . . 

1,266,635 

715,090 

326,983 

475,386 

Kansas  City. . . 

3,085,007 

1,617,169 

1,035,609 

1,466,643 

Omaha 

1,975,236 

1,135,517 

658,354 

839,719 

St.  Joseph .... 

750,151 

531,100 

124,096 

218,991 

St.  Paul 

1,490,926 

529,562 

416,408 

935,176 

Sioux  City .... 

814,093 

362,570 

328,984 

458,915 

The  cattle  are  shipped  to  these  primary  markets 
by  their  owners  on  consignment  in  car  lots  to  com- 
mission men.  In  the  stockyards  at  the  primary  markets 
all  sales  are  made  by  the  commission  men  to  whom  the 
cattle  have  been  consigned.  The  rate  of  coimnission 
is  fixed  by  the  local  association  of  which  they  are 
members.  The  cattle  are  sold  by  public  auction  in 
the  stockyards,  usually  within  twenty-four  hours  after 
arrival.  The  chief  buyers  of  cattle  are  the  representa- 
tives of  the  large  packing  companies  and  to  some 
extent  firms  of  exporters.  The  cattle  are  sold  for  cash 
and,  after  deducting  his  commission  and  any  incidental 
expenses,  the  commission  merchant  remits  the  proceeds 
of  the  sale  immediately  to  the  cattle  shipper. 

The  cattle  trade  is  one  in  which  special  methods  of 
financing  have  been  developed.  Owners  of  cattle 
that  are  not  intended  for  early  shipment  or  that  are  to 
be  kept  on  the  ranch  for  breeding  purposes  or  for 
growth  before  marketing  frequently  require  loans. 
These  loans  are  long-time  loans.  They  are  made  by 
local  banks  or  by  individuals  acting  as  private  bankers. 

For  financing  the  trade  in  beef  cattle  which  are  to 
be  fattened  on  the  ranges  or  in  the  corn  belt,  a  large 

1  U.  S.  De-parlment  of  AgricuUure,  "The  Market  Reporter," 
January  17,  1920,  p.  36. 


190  MARKETING  PROBLEMS 

volume  of  short-time  loans  is  made  each  year.  These 
loans  usually  are  for  a  period  of  three  to  six  months. 
The  loans  are  liquidated  when  the  cattle  are  sold.  Many 
loans  of  this  type  are  made  to  the  cattle  men  by  cattle 
loan  companiesi.  There  are  cattle  loan  companies  with 
headquarters  in  all  the  primary  markets.  The  largest 
of  them  generally  are  affiliated  with  large  banks  located 
near  the  stockyards.  The  cattle  loan  companies  are 
operated  as  distinct  corporations,  but  in  close  coopera- 
tion with  the  banks.  Cattle  loans  vary  in  size  from 
$500  to  $1,000,000.  The  average  loan  is  probably 
$10,000  to  $20,000. 

The  steps  taken  by  a  cattle  loan  company  are  as 
follows^:  After  an  application  has  been  received,  the 
cattle  loan  company  makes  an  inquiry  regarding  the 
moral  hazard,  ability,  experience,  financial  standing, 
and  equipment  of  the  prospective  borrower.  The  com- 
pany ordinarily  requires  a  sworn  statement  of  the 
borrower's  assets  and  Uabilities. 

An  expert  in  the  employ  of  the  cattle  loan  company 
inspects  and  grades  the  cattle  that  are  offered  as 
security  and  furnishes  a  written  report,  stating  the 
brands  by  which  the  cattle  are  identified.  In  preparing 
a  report  of  this  sort  on  a  large  herd,  expert  knowledge 
of  cattle  is  essential. 

An  inquiry  also  is  made  regarding  the  prospective 
borrower's  equipment  of  feed,  water,  shelter,  fences, 
and  help. 

A  search  is  made  of  records  in  the  locality  where  the 
cattle  are  and  a  certificate  is  secured  from  the  proper 
officials  to  show  to  whom  the  title  to  the  cattle  belongs. 

If  the  loan  is  granted,  the  cattle  loan  company 
takes  the  note  of  the  borrower  at  the  agreed  rate  of 
interest.  The  loan  company  then  ordinarily  discounts 
the  note  at  a  bank  with  the  cattle  loan  company's 
endorsement. 

1  Charles  S.  Cole,  "Cattle  Loans  and  Their  Value  to  Investors," 
U.  S.  Department  of  Agriculture,  Year  Book,  1918;  E.  M.  Larner, 
"The  Cattle  Loan  Company,"  Journal  of  Political  Economy,  October 
1918. 

2  W.  B.  Harrison,  "Facts  about  Cattle  Loans,"  Successful  Banking, 
June,  1916. 


MATERIALS  AND  EQUIPMENT  191 

The  following  statement  summarizes  the  poUcy  of 
the  cattle  loan  companies  in  regard  to  the  amount 
that  they  lend^: — 

Ability  to  handle  stock  properly  and  advantageously  is 
essential  if  the  safety  of  the  loan  is  not  to  be  impaired. 
The  growth  and  development  of  stock  furnishes  a  margin 
of  safety,  since  this  is  depended  upon  to  care  for  declines 
in  the  market.  The  collateral  taken  is  supposed  to  be 
sufficient  to  take  care  of  any  normal  market  fluctuations 
and  the  growth  of  the  stock  is  supposed  to  take  care  of 
unusual  declines.  It  is  apparent,  therefore,  that  the  cattle- 
man's ability  properly  to  take  care  of  his  stock  is  fully  as 
vital  as  the  collateral  he  offers. 

The  amount  loaned  is  from  half  to  full  value  of  the  stock. 
It  is  customary  to  loan  from  75  to  80%  of  the  value  of  the 
stock  on  the  ground  that  20  to  25%  is  ample  margin  for 
safety.  Sometimes,  especially  in  the  case  of  feeders,  if  the 
applicant  has  a  reputation  for  finishing  his  stock  for  market 
and  has  ample  feed,  he  can  obtain  a  loan  equal  to  the  market 
value  of  his  stock  at  the  time  of  borrowing.  The  condition 
of  the  market  has  a  bearing  upon  the  making  of  such  loans. 
Unlike  other  collateral,  live  stock  becomes  more  valuable 
by  growth  and  by  increase.  Because  of  these  two  factors, 
the  hazards  of  loaning  are  greatly  reduced  and  the  margin 
required  for  safety  need  not  be  as  great  as  that  ordinarily 
required  in  loans  on  other  chattels.  The  conservative  loan- 
ing agency,  however,  requires  a  safe  margin  in  addition  to 
the  feed  on  hand,  except  in  cases  where  the  applicant's 
financial  ability  justifies  the  loan  on  grounds  other  than  the 
collateral  offered. 

How  do  the  methods  of  selling  cattle  at  the  primary 
markets  affect  the  policies  of  a  cattle  loan  company 
in  making  loans  on  cattle? 


'Charles  S.  Cole,  "Cattle  Loans  and  Their  Value  to  Investors," 
U.  S.  Department  of  Agriculture,  Year  Book,  1918,  p.  5. 


192  MARKETING  PROBLEMS 

121.    William  Jackson — Sale  of  Cattle 

The  following  statement  was  made  by  a  state 
official  in  Texas,  December,  1919^: — 

We  have  been  seeking  for  some  time  a  practical  method 
of  selling  live  stock  for  slaughter  which  would  enable  the 
producer  to  be  a  party  to  the  sale.  Under  present  methods, 
the  grower  is  compelled  to  make  blind  consignment  to  some 
agency  at  the  stockyards  and  to  sell  almost  immediately 
upon  arrival;  or  do  worse  by  holding  over  at  large  expense. 
How  many  times  would  shippers  refuse  what  they  are  com- 
pelled to  accept,  could  they  turn  the  stock  back  to  the  range 
or  feeding  and  wait  for  a  better  offer?  Under  the  present 
method,  practically  all  meat  stock  becomes  distressed  the 

moment  it  is  loaded. 

*  *  *  * 

My  conviction  is  that  the  people  will  either  establish 
cooperative  local  slaughter  houses,  or  the  packers  will 
eventually  control  not  only  the  live  stock  but  all  the  primary 
necessities  of  life.  However,  my  purpose  in  this  article  is 
to  start  some  discussion  as  to  means  of  assisting  live  stock 
producers,  in  absence  of  the  abattoir.  We  are  going  to 
Considerable  expense  and  trouble  to  inspect  live  stock  for 
the  purpose  of  controlling  or  eradicating  communicable 
diseases;  why  not  go  a  step  further  and  establish  grades, 
and  have  the  inspector  to  also  grade  the  live  stock  with  a 
view  to  selling  f.  o.  b.?  This  would  give  the  grower  an 
opportunity  to  hold  back  his  shipment  when  the  price  did 
not  suit  him. 

I  realize  that  such  plan  would  entail  some  trouble  as  to 
detail,  but  the  same  is  true  of  every  great  worth  while 
movement. 

Analyze  this  statement  from  the  standpoint  of 
William  Jackson,  the  owner  of  a  400,000-acre  ranch 
in  the  central  part  of  Texas.  Mr.  Jackson  has  about 
10,000  head  of  cattle. 

*  Monthly  News  Bulletin,  Austin,  Texas,  January  1,  1920. 


MATERIALS  AND  EQUIPMENT  193 

122.     Hide  Trade 

The  following  statements  are  quoted  from  a  bulletin 
of  the  United  States  Department  of  Agriculture^ : — 

Packer  hides  and  skins. — Packer  hides  and  skins  are 
taken  off  in  establishments  where  the  slaughtering  is  of  a 
wholesale  character,  and  where  men  usually  are  employed 
exclusively  for  the  purpose  of  removing  hides.  In  the  plants 
of  the  large  packers  the  labor  is  so  divided  that  each  worker 
has  a  particular  task  to  perform,  in  which  he  becomes  very 
proficient.  Since  they  are  taken  off  in  large  numbers,  the 
hides  are  uniformly  selected  and  cured,  and  generally  are 
free  from  salt  stains  and  excess  salt  or  pickle.  The  result 
is  a  product  of  uniform  selection,  of  good  pattern  and  trim, 
and  with  few  imperfections,  making  possible  a  maximum 
yield  of  leather  of  the  best  quality. 

Country  hides  and  skins. — Country  hides  and  skins  are 
taken  off  by  farmers,  ranchmen  and  local  butchers  or  by 
their  helpers,  who  generally  are  inexperienced  in  skinning. 
This  classification  includes  "fallen"  hides,  or  those  from 
animals  that  have  died  from  disease,  accident,  or  natural 
causes,  as  well  as  those  from  animals  that  have  been  slaught- 
ered for  food.  Country  hides  originate  in  small  numbers, 
in  scattered  and  remote  sections  of  the  country,  and  seldom 
are  treated  in  a  careful  and  efficient  manner  with  respect 
to  skinning,  curing,  and  marketing.  The  result  frequently 
is  a  poor  product  of  irregular  pattern  and  trim,  with  many 
imperfections;  such  hides  and  skins  are  usually  handled 
several  times  before  being  available  in  uniform  selection. 
Not  only  is  the  yield  of  leather  from  such  hides  and  skins 
comparatively  low  and  uncertain,  but  the  leather  is  capable 
of  only  limited  use. 

*  *  *  * 

The  United  States  Department  of  Agriculture  receives 
many  protests  from  farmers  and  butchers  against  the  wide 
difference  that  exists  between  the  prices  paid  them  for  hides 
and  the  prices  charged  them  for  leather.  This  condition  is 
the  result  of  many  factors,  most  of  which  are  not  peculiar 
to  hides  and  leather,  but  apply  equally  to  many  other  com- 
modities. After  the  producer  sells  them,  the  hides  must 
pass  through  numerous  necessary  processes  of  further  mar- 
keting, transportation,  and  manufacture  before  being  con- 
verted into  leather,  which  in  turn  undergoes  many  additional 
processes  in  being  made  into  finished  articles  and  in  being 
sold.    It  must  be  remembered  also  that  a  loss,  based  on  the 

*  U.  S.  Department  of  Agriculture,  Farmers'  Bulletin  1056,  "Country 
Hides  and  Skins,  Skinning,  Curing,  and  Marketing,"  pp.  3-4,  9-11, 
42-43,  46-51. 


194  MARKETING  PROBLEMS 

weight  of  the  salt-cured  hide,  of  from  10  to  30  per  cent, 
occurs  in  tanning.  The  wide  difference  between  the  prices 
of  the  raw  and  the  finished  products,  as  well  as  the  low  prices 
paid  for  country  hides  and  skins  as  compared  with  the  prices 
paid  for  those  marketed  by  the  packers,  is  also  due  partly 
to  several  factors  less  difficult  to  control  than  those  just 
mentioned.  Among  them  is  the  general  inferiority  of 
country  hides  and  skins,  due  to  indifferent  and  improper 
methods  of  handling  and  to  the  lack  of  a  well  defined  and 
closely  followed  system  of  classifying  and  marketing  them. 
Much  improvement  is  possible  along  these  lines,  and  this 
rests  almost  entirely  with  the  farmer  and  the  country 
butchers. 

There  are  three  important  operations  in  the  handling  of 
hides  and  skins:  Take-off  or  skinning;  salting  and  curing; 
and  marketing.  Every  effort  should  be  made  to  perform 
these  operations  properly  and  efficiently,  bearing  constantly 
in  mind  that  the  hide  or  skin,  as  well  as  the  meat,  is  an 
article  of  value.  To  the  small  butcher,  and  even  to  the 
farmer  with  only  an  occasional  hide  or  skin  to  market,  the 
avoidable  loss  is  appreciable,  and  collectively  it  amounts  to 
miUions  of  dollars  annually.  The  correct  methods  of  skin- 
ning, salting,  curing,  and  marketing,  when  carefully  followed, 
will  more  than  offset  the  little  extra  time  and  effort  required, 
by  the  improvement  in  quality  and  the  better  returns. 

*  *  *  * 

The  grade  terms  employed  in  marketing  country  hides 
and  skins  are  somewhat  indefinite  and  are  not  uniformly 
understood  and  applied  throughout  the  United  States.  At 
present  there  is  no  recognized  standard  of  classification 
uniform  for  hides  and  skins  originating  in  all  sections  of  the 
country.  This  is  due  partly  to  former  haphazard  methods 
of  marketing  and  partly  to  the  alleged  differences  in  the 
quality  and  condition  of  these  products  in  different  sections 
of  the  country.  It  is  asserted  that  the  conditions  which 
produce  these  differences  on  which  the  resulting  price 
differentials  are  based  are  noticeable  especially  in  the  grain, 
texture,  thickness,  spread,  and  quality  of  the  leather,  and 
that  they  are  caused  largely  by  climatic  conditions,  methods 
of  handling  cattle,  kinds  of  cattle,  kinds  of  feed,  methods  of 
feeding,  ticks,  grubs,  brands,  environment,  and  the  methods 
employed  in  skinning,  curing,  and  marketing  the  hides. 
Because  of  these  conditions  the  hide  trade  has  divided  the 
United  States  into  nine  sections,  and  discriminated  accord- 
ingly in  the  prices  paid  for  similar  classes  and  weights  of 
hides  and  skins  originating  in  the  various  sections. 

*  *  *  * 

While  improvement  of  country  hides  and  skins  and 
consequent  increase  in  returns  for  them  are  possible,  yet 


MATERIALS  AND  EQUIPMENT  195 

even  with  hides  and  skins  similar  in  quality  to  those  pro- 
duced by  the  packers  it  is  not  possible  for  the  individual 
producer,  who  must  operate  on  a  small  scale  and  market 
more  or  less  indirectly,  to  receive  the  top  prices  paid  to  the 
packers,  who  generally  sell  directly  to  the  tanners. 

The  tannery  is  generally  the  destination  of  all  hides  and 
skins,  and  efficient  and  economic  marketing  will  place  them 
at  the  tannery  door  at  the  earliest  practicable  date  in  the 
best  condition  possible  and  with  the  aid  of  only  the  essential 
marketing  agencies.  Each  tannery,  however,  as  a  rule, 
specializes  in  certain  kinds  of  leather,  and  consequently 
must  have  uniformity  in  its  supply  of  hides  and  skins.  Since 
the  tanner  is  not  in  a  position  to  handle  all  kinds  and  classes 
of  these  materials,  some  central  collecting  and  classifying 
agency  is  necessary. 

It  is  here  that  the  packers  have  an  incalculable  marketing 
advantage  over  the  country-hide  producers.  The  packers 
deal  in  large  numbers  of  hides  and  skins  and  as  a  result  can 
can  assort  and  classify  them  in  marketable  lots,  and  sell 
them  directly  to  the  tanner  or  with  the  occasional  inter- 
vention of  only  one  agency,  namely,  the  hide  broker  or 
tanner's  buyer.  The  extremely  scattered  sources  and  the 
comparatively  small  individual  production  of  country  hides 
and  skins  make  it  impossible  for  the  country-hide  producers 
to  obtain  this  advantage.  These  widely  scattered  materials 
first  must  be  collected  and  classified  in  large  lots.  Conse- 
quently, before  reaching  the  consumer  or  tanner,  they  pass 
through  many  hands,  each  one  of  which  exacts  its  toll. 

*  *  *  * 

The  opinions  of  the  trade  are  divided  over  the  practica- 
bility of  dispensing  with  the  services  of  the  traveling  hide 
buyers  or  agents  of  the  large  hide  dealers  in  central  markets. 
Their  salaries  and  traveling  expenses  range  from  half  a  cent 
to  3  cents  a  pound  of  the  hides  they  buy,  depending  on  the 
volume  of  business  they  do  and  their  efficiency  in  buying. 
Those  opposed  to  these  agents  advocate  marketing  direct 
from  producer  to  the  large  dealers  who  sell  direct  to  tanners. 
They  assert  that  the  expense  necessary  to  the  maintenance 
of  a  traveling  buying  force  should  be  paid  to  the  producer 
or  be  used  in  reducing  the  cost  of  leather  products.  Those 
who  favor  the  retention  of  these  agents  state  that  many 
hides  would  never  reach  the  market  and  that  there  would  be 
more  damaged  ones  than  at  present,  with  consequent  dis- 
astrous results  to  the  country-hide  industry,  because  of  the 
absence  of  local  competitive  buying.  They  maintain  that 
without  the  traveling  buyer  the  producer  would  be  at  the 
mercy  of  the  unscrupulous  and  unrestrained  consignment- 
hide  buyer. 


196  MARKETING  PROBLEMS 

The  logical  agency,  however,  with  which  the  small  pro- 
ducer should  deal  when  seeking  to  market  his  hides  and 
skins  direct,  is  the  large  hide  dealer,  who  assembles  the  non- 
descript lots  of  hides  from  hundreds  of  small  slaughterers 
and  dealers  and  prepares  and  classifies  them  according  to  the 
demands  of  the  tanners,  to  whom  he  offers  them  in  carload 
lots. 

Another  serious  factor  in  the  country-hide  situation  is 
an  evil  reputation,  frequently  deserved  at  present,  but  which 
persists  even  in  meritorious  cases.  Many  farmers,  ranch- 
men, and  small  butchers,  who  see  only  the  value  of  the  meat 
on  the  animals  which  they  slaughter,  treat  the  hides  and 
skins  indifferently  and  carelessly,  and  look  upon  them  as 
waste  products  for  which  any  price  is  so  much  clear  gain. 
Then,  too,  some  of  the  traders  and  producers  often  resort 
to  unnecessary  and  questionable  uses  of  salt,  pickle,  and 
other  chemicals  in  order  to  prevent  shrinkage,  to  add  false 
weight,  or  to  replace  the  weight  lost  through  natural  shrink- 
age. Applying  water  to  green-salted  hides  just  prior  to  their 
sale  for  the  purpose  of  adding  weight  is  an  equally  repre 
hensible  practice. 

These  questionable  and  dishonest  practices  do  not 
deceive  experienced  hide  buyers  and  tanners,  who  demand 
liberal  reductions  in  tare  and  in  prices  when  purchasing 
hides  thus  treated.  There  does  result,  however,  a  national 
economic  loss,  since  by  this  ill  treatment  the  greatest  useful- 
ness of  these  hides  and  skins  is  destroyed.  Such  treatment 
serves  only  to  invite  penalties  in  the  form  of  low  prices, 
not  only  for  those  sold  at  the  time,  but  also  for  future 
offerings,  as  dealers,  brokers,  and  tanners,  remembering  the 
defective  hides  and  skins  and  anticipating  more,  make  their 
price  arrangements  as  a  matter  of  protection.  Often  these 
prices  are  inequitable,  because  the  penalties  generally  are 
spread  over  all  hides  of  the  country  description. 

Because  of  the  existence  very  generally  of  these  inferior 
qualities,  of  the  lack  of  careful  selection  and  classification, 
and  of  the  apparent  inclination  of  many  persons  connected 
with  the  trade  to  magnify  and  to  capitalize  alleged  defects, 
many  of  the  country-hide  producers  feel  that  no  amount  of 
precaution  and  efficiency  on  their  part  would  be  rewarded 
by  better  prices.  Though  some  of  them  realize  that  hides 
have  values  and  that  these  values  depend  largely  on  care- 
fulness and  efficiency  in  skinning  and  curing,  they  often, 
because  of  the  evil  repute  of  country  hides  and  skins  as  a 
class,  fail  to  find  a  ready  market  at  reasonable  prices,  even 
though  the  hides  they  offer  have  been  handled  properly. 

When  a  producer  is  paid  as  much  for  hides  and  skins 
which  have  cuts,  sores,  fleshings,  horns,  dewclaws,  tail  bones, 
sinews,  hair  slips,  salt  stains,  poor  pattern  and  trim,  dragged 


MATERIALS  AND  EQUIPMENT  197 

spots,  brands,  grubs,  and  other  imperfections  as  for  those 
which  are  comparatively  perfect,  he  is  paid  a  premium  for 
inefficiency  and  has  no  incentive  to  improve  his  methods  or 
to  strive  for  greater  conservation.  This  appHes  to  a  less 
extent  when  hides  are  sold  on  a  graded  basis  with  only  light 
penalties  for  the  results  of  carelessness. 

No  farmer  would  sell  a  fat  steer  for  the  price  of  an  old 
cow.  There  is  no  more  reason  for  selling  perfect  hides  and 
imperfect  ones  at  the  same  price,  for  the  chances  are  that 
the  price  will  ])e  on  the  basis  of  the  inferior  ones. 

The  hitherto  almost  universal  practice  of  selling  country 
hides  and  skins  at  flat  prices  without  regard  to  selections 
and  grades  based  upon  quality,  weight,  and  condition  has 
contributed  in  a  large  way  to  the  present  condition  of 
country  hides  and  skins,  with  the  consequent  tanner's 
aversion  to  them  and  the  wide  margin  between  the  market 
prices  of  such  hides  and  of  packer  hides.  The  practice  of 
flat  selling  is  not  suited  to  modern  methods  of  marketing 
and  has  been  abandoned  by  all  progressive  producers  and 
merchants  in  nearly  every  line  of  merchandise. 

A  long  stride  forward  was  made  when  the  War  Industries 
Board  in  1918  issued  orders  requiring  all  hides  and  skins  to 
be  sold  by  classes  and  grades.  The  maximum  results  of  this 
progressive  measure,  however,  will  be  deferred  until  the 
various  methods  of  grading  have  been  revised,  simplified, 
correlated,  and  faithfully  applied  to  the  trading  in  all  sec- 
tions of  the  country.  There  should  be  well-defined  classes 
and  grades,  not  only  for  packer,  but  also  for  country  hides 
and  skins.  In  fact,  a  single  standard  for  all  hides  and  skins 
by  means  of  which  they  can  be  graded  and  sold  on  merit, 
regardless  of  origin,  is  desirable  and  deserves  serious  con- 
sideration. A  standardized  basis  for  trading  should  make 
it  possible  for  the  country  producers  to  realize  prices  more 
nearly  commensurate  with  the  quality  of  their  products. 
As  a  result,  carelessness  and  much  inefficiency  should  soon 
be  overcome  and  a  marked  improvement  in  the  merchanta- 
bility and  market  prices  of  hides  and  skins  of  the  country 
class  should  follow. 

Why  is  there  no  organized  speculation  in  hides? 


198  MARKETING  PROBLEMS 

123.    Loose  Leaf  Auctions  in  the  Tobacco  Trade 

The  largest  tobacco  growing  district  in  the  United 
States  is  Virginia,  Maryland,  North  Carolina,  South 
Carolina,  Kentucky,  and  Tennessee,  with  substantial 
quantities  also  grown  in  the  adjoining  sections  of 
neighboring  states^.  In  Connecticut,  Pennsylvania, 
Wisconsin,  Ohio,  and  several  other  northern  states 
large  quantities  of  cigar  leaf  are  grown.  The  trade  in 
cigar  leaf,  however,  is  entirely  distinct  from  the  trade 
in  southern  leaf. 

The  bulk  of  the  tobacco  grown  in  Virginia,  North 
Carolina,  and  South  Carohna  is  known  as  hght  flue- 
cured  leaf  and  is  used  largely  in  the  manufacture  of 
cigarettes.  In  the  western  part  of  Kentucky,  Tennes- 
see and  some  sections  in  Virginia,  dark  tobacco  is  grown 
in  large  quantities  and  is  used  for  the  manufacture  of 
snuff,  plug,  twist,  and  fine  cut  chewing  tobacco.  This 
tobacco  also  is  sold  in  large  quantities  for  export. 

The  Burley  tobacco  district  centers  in  eastern 
Kentucky.  This  leaf  is  used  chiefly  for  the  manufacture 
of  smoking  tobacco. 

The  quality  of  tobacco  depends  primarily  upon 
soil  and  climatic  conditions.  There  are  numerous 
special  characteristics  of  the  tobacco  grown  in  each 
locaUty. 

In  eastern  Virginia,  North  Carolina  and  South 
Carolina  for  some  time  tobacco  has  been  sold  at  public 
auctions  by  the  so-called  loose-leaf  system.  In  the 
Burley  district  and  in  the  dark  tobacco  districts  of 
Kentucky  and  Tennessee  the  tobacco  formerly  was 
packed  in  hogsheads  and  generally  shipped  to  Louis\'ille 
and  Cincinnati.  At  these  cities  were  large  warehouses, 
in  which  the  tobacco  was  dryed  and  stored  and  sold 
either  at  auction  or  private  sale  after  inspection  by  the 
representative   of   the    tobacco   manufacturer.      The 

^References  on  trade  in  tobacco: — M.  Jacobstein,  The  Tobacco 
IndiLstry.  G.  K.  Holmes,  "Systems  of  Marketing  Farm  Products," 
U.  S.  Department  of  Agriculture,  Report  No.  98.  U.  S.  Commissioner 
of  Corporations,  Report  on  the  Tobacco  Industry.  G.  G.  Huebner, 
Agricultural  Commerce.  Anne  Youngman,  "Tobacco  Pools  of  Kentucky 
and  Tennessee,"  Journal  of  Political  Economy,  1910.  Tobacco  World. 
Tobacco  Leaf. 


MATERIALS  AND  EQUIPMENT  199 

farmer  frequently  had  received  financial  assistance 
from  the  warehouse  company  on  condition  that  the 
tobacco  should  be  consigned  to  the  warehouse  company 
for  sale.  Within  the  last  ten  years  the  shipment  of 
tobacco  in  hogsheads  to  Louis\'ille  and  Cincinnati  has 
rapidly  decHned.  In  the  Burley  district  and  dark 
tobacco  district  as  well  as  in  Virginia  the  bulk  of  the 
tobacco  is  now  sold  by  the  loose-leaf  system. 

After  the  crop  is  harvested  it  is  hung  on  sticks  and 
stored  in  the  tobacco  barn  to  cure.  This  curing  process 
usually  takes  two  months^.  As  soon  as  it  is  sufficiently 
cured,  it  is  ready  to  be  marketed.  The  farmer  in  selling 
by  the  loose-leaf  system  hauls  a  load  of  tobacco  to  the 
local  market  town  where  the  tobacco  is  placed  upon 
the  floor  of  the  auction  room.  Each  individual  lot  is 
then  sold  at  auction,  usually  to  buyers  of  the  tobacco 
manufacturing  companies.  As  soon  as  it  is  sold,  the 
tobacco  is  removed  by  the  buyer  and  shipped  to  the 
manufacturing  plant  where  it  is  dryed,  stored,  and 
put  through  the  necessary  processes  to  prepare  it  for 
manufacture.  In  some  cities,  such  as  Lexington,  Ken- 
tucky, which  is  in  the  heart  of  the  Burley  district,  there 
is  more  than  one  loose-leaf  auction  house.  The  farmer 
pays  a  small  fee  to  the  proprietor  of  the  loose-leaf  house 
for  weighing  and  sale. 

Why  have  the  loose-leaf  auctions  supplanted  the 
method  previously  used  for  selling  tobacco  in  the 
State  of  Kentucky? 

Why  do  the  tobacco  manufacturers  adopt  a  policy 
of  buying  directly  from  farmers  at  the  loose-leaf 
auctions? 

1  Kentucky  Agricultural  Experiment  Station,  Bulletin  No.  202. 


200  MARKETING  PROBLEMS 

124.    International  Fur  Exchange — Auctions 

In  February,  1920,  the  two  weeks'  auction  sales  of 
raw  furs  at  St.  Louis  amounted  to  $27,152,000,  accord- 
ing to  the  newspaper  reports.  Following  the  St.  Louis 
sale  in  February,  1920,  also  occurred  the  New  York 
fur  auctions  at  which  pelts  valued  at  $10,000,000  were 
offered.  The  large  increase  in  the  volume  of  sales  at 
these  American  fur  auctions  is  one  of  the  noteworthy 
effects  of  the  war. 

i-v  An  impetus  to  the  sale  of  furs  at  public  auction  in 
the  United  States  was  given  by  the  action  of  the  United 
States  government  in  1913,  in  sending  its  entire  catch 
of  Pribilof  Islands  seal  and  blue  and  white  fox  skins 
to  St.  Louis  for  sale  at  the  auction  in  December  of 
that  year.  Previously  these  government  furs  had  been 
sent  to  London  to  be  auctioned. 

Up  to  that  time  London  had  been  the  leading  mar- 
ket in  the  world  for  raw  furs.  This  is  said  to  have 
been  due  in  part  to  the  conditions  of  the  original 
Hudson  Bay  Company's  grant  which  required  that 
all  the  pelts  obtained  by  this  Company  should  be 
taken  to  London  for  sale^.  On  the  continent  of  Europe 
there  were  also  several  important  fur  markets.  Irbit, 
on  the  Siberian  frontier,  was  the  leading  market  for 
Siberian  furs.  The  chief  Russian  fur  companies  wxre 
all  represented  at  the  annual  Irbit  fair.  Many  furs 
bought  at  Irbit  were  resold  at  the  auctions  in  Leipzig 
and  London.  Leipzig  is  said  to  have  been  the  most 
important  market  in  the  world  for  manufactured  and 
dyed  furs. 

When  war  broke  out  in  Europe  in  1914,  the  fur  trade 
was  immediately  interrupted.  Large  quantities  of  furs 
that  previously  had  been  sent  to  Irbit  and  Nijni- 
Novogorod,  Leipzig,  and  London  were  sent  to  St.  Louis. 
The  sales  in  St.  Louis  in  February,  1920,  were  the 
largest  that  had  been  held  up  to  that  time.  The  sales 
in  March,  1916,  in  St.  Louis  were  about  $2,000,000.  In 
February,  1920,  as  stated  above,  they  amounted  to  over 

1  Henry  A.  Beers,  Jr.,  "Advertising  to  Keep  the  World's  Central 
Fur  Exchange  Within  Our  Shores,"  Printers'  Ink,  November  2,  1916, 
pp.  67-62. 


MATERIALS  AND  EQUIPMENT  201 

$27,000,000.  At  this  1920  auction  it  was  stated  that 
every  known  variety  of  fur  from  every  fur-producing 
country  in  the  world  was  represented.  America  is  said 
to  lead  the  world  in  the  production  of  high  grade  pelts, 
but  large  quantities  also  were  sent  from  foreign  coun- 
tries. The  sales  on  February  10th,  for  example, 
amounting  to  SI, 700,000,  included  the  following:— 
500,000  Austrahan  opossum,  100,000  Australian  ring- 
tail opossum,  46,500  wallaby,  67,000  wombats,  600 
kangaroos,  100,000  fitch,  70,000  koHnsky,  130,000 
American  ermine,  6,000  gray  ermine,  50,000  brown 
ermine. 

The  sales  on  February  11th,  amounting  to  $2,000,- 
000,  included  543,000  white  hares,  700,000  Australian 
rabbits,  200,000  New  Zealand  rabbits,  300,000  Dutch 
rabbits.  Some  of  these  rabbit  furs  were  sold  to  furriers, 
but  the  bulk  were  sold  to  hatters  for  the  manufacture 
of  felt  hats.  The  sales  on  this  date  also  included 
380,000  American  opossum,  20,000  house  cats,  and 
smaller  lots  of  hair  seal,  leopard,  mountain  Hon,  otter, 
wolverine,  gray  fox.  South  American  fox,  reindeer, 
guanaco,  bear,  and  polar  bear. 

At  the  sales  on  other  days  numerous  other  varieties 
of  furs  were  sold.  A  lot  of  9,100  United  States  govern- 
ment seal  skins,  for  example,  was  sold  for  SI, 282,000. 

The  sales  at  St.  Louis,  held  three  times  a  year,  are 
at  pubHc  auction  on  the  International  Fur  Exchange, 
a  private  institution.!  The  catalogues  of  the  sales  are 
prepared  in  advance,  and  the  furs  themselves  are  avail- 
able for  inspection  before  the  bidding  commences. 
Sales  are  made  at  these  auctions  in  the  main  directly 
to  fur  manufacturers  and  others  who  use  fur  as  raw 
material.  Numerous  buyers  from  foreign  countries 
attend  these  auctions. 

'  In  1917  a  similar  system  of  fiir  auctions  were  started  in  New 
York.  The  first  auction  was  held  in  January,  1917.  The  sales  at  this 
first  auction  were  about  $1,500,000.  At  the  sale  that  opened  Februjiry 
16,  1920,  it  is  reported  that  2,500,000  pelts  valued  at  $10,000,000  were 
offered.  There  were  over  80  varieties  of  furs.  The  New  York  and 
St.  Louis  auctions  are  competitive.  The  New  York  auctions,  further- 
more, were  nearly  as  larpje  as  the  contemporary  auctions  in  Ixindon, 
and  the  sales  at  the  St.  Louis  auctions  were  nearly  twice  as  large  as 
those  in  London  in  February,  1920. 


202  MARKETING  PROBLEMS 

Furs  are  shipped  on  consignment  by  raw  fur  dealers 
to  Funsten  Brothers  &  Company,  who  operate  the 
International  Fur  Exchange.  Through  market  letters, 
mail,  telegraph,  and  cable,  shippers  are  advised  by  this 
company  regarding  market  conditionj!'.  The  furs,  upon 
receipt  at  St.  Louis,  are  graded  and  stored  for  the 
auction.  A  fee  of  5%  of  the  selling  price  is  the  com- 
pensation received  by  the  company  from  the  shipper. 
One  per  cent  discount  is  allowed  to  the  buyer  and  this 
is  also  deducted  from  the  price  remitted  to  the  shipper. 
The  company  makes  an  advance  of  money,  when 
desired,  to  any  shipper  on  furs  shipped;  the  interest 
on  these  advances  is  at  the  rate  of  6%  a  year.  The 
amount  realized  from  the  sale  of  each  lot  of  skins  at 
the  auction  is  remitted,  less  the  charges,  immediately 
after  the  sale;  that  is,  within  three  to  four  weeks, 
the  period  depending  upon  the  volume  of  business  to 
be  handled  and  accounted  for. 

Buyers  attending  the  auction  are  privileged  to 
examine  the  furs  before  the  sale  commences.  Prior 
to  the  auction  the  furs  are  graded  by  experts  and 
assorted  into  lots,  designated  in  the  catalogue.  The 
prospective  buyer,  while  examining  each  lot,  makes 
notes  in  a  copy  of  the  catalogue  for  reference  when 
bidding.  In  the  case  of  an  article  like  Alaska  seal- 
skins, each  entire  lot  is  shown  to  the  buyers  for  exam- 
ination. With  an  article  like  Russian  squirrel,  however, 
where  a  single  lot  may  number  4,000  skins,  the  buyers 
are  shown  a  sample  of  about  50  skins,  but  the  entire 
lot  may  be  inspected,  if  desired.  One  of  the  most 
important  parts  of  the  business  of  Funsten  Bros.  & 
Company  is  the  grading  and  drawing  of  samples  of 
the  different  lots;  a  sample  of  50  skins  must  truly 
represent  a  lot  of  4,000.  During  the  auction  the 
skins  are  sold  at  the  rate  of  about  100  lots  an  hour. 

The  buyer  is  allowed  four  months  in  which  to  pay 
for  and  take  delivery  of  furs.  He  must  pay  25%  on  a 
stipulated  date,  about  one  month  after  the  close  of 
the  sale,  known  as  Prompt  Day,  for  which  he  is  allowed 

1  The  following  information  was  furnished  by  Funsten  Brothers 
and  Company. 


MATERIALS  AND  EQUIPMENT  203 

1%  cash  discount.  The  buyer  also  pays  a  small  fee  for 
each  purchase,  and  H%  brokerage.  The  fee,  known 
as  "lot  money,"  is  50  cents  for  each  lot  of  seals  and 
25  cents  for  each  lot  of  other  furs. 

What  considerations  might  induce  a  shipper  of  high 
grade  fox  skins  in  Newfoundland  to  send  his  furs  to 
St.  Louis? 


125.     Carrying  Stocks  in  the  Steel  Trade 

An  editorial  was  published  in  the  Iron  Age,  Decem- 
ber 31,  1914,  on  the  "Steadying  Effects  of  Carrying 
Stocks!."    The  following  statement  was  made: 

It  is  a  commonly  accepted  theory  in  the  study  of  markets 
for  commodities  that  the  carrying  of  stocks  tends  to  steady 
prices;  that  commodities  that  can  be  carried  in  stock  are 
as  a  rule  subject  to  less  violent  fluctuations  than  those  that 
must  pass  directly  from  production  to  consumption. 

It  is  then  pointed  out  that  the  experience  of  the 
steel  trade  indicates  a  limitation  upon  this  theory. 
The  opinion  is  expressed  that  for  this  steadying  effect 
to  be  realized  stocks  must  be  carried  by  sellers  and 
not  by  buyers. 

The  carrying  of  stocks  of  steel  by  jobbers  and  consumers, 
or  rather  the  abiHty  to  carry  them  or  not  to  carry  them,  is 
one  of  the  important  influences  that  cause  the  wide  fluctua- 
tions to  which  steel  prices  are  notoriously  subject. 

The  significance  of  this  statement  is  then  pointed 
out  for  different  classes  of  products.  It  is  stated  that 
rails  are  not  stocked  and  that  plates  and  shapes  are 
stocked  to  only  a  small  percentage  of  the  total  pro- 
duction.    Bars,   pipe,   sheets,   wire,   hoops,   etc.,   are 

'  Iron  Age,  December  31,  1914,  p.  1498.  Olhor  references  on  the 
iron  and  steel  industry:  J.  R.  Smith,  ^^/or7/  of  Iron  and  Steel.  A. 
Berghmd,  United  States  Steel  Corporation,  ('alitnibia  Studies,  Vol. 
XXVII,  No.  2,  1909.  U.  S.  Commissioner  of  Corporations,  Report  on 
the  Steel  Industry.     Iron  Trade  Review.    Steel  and  Metal  Digest. 


204  MARKETING  PROBLEMS 

stocked  largely  by  jobbers,  retailers,  and  manufacturing 
consumers.  This  last  class  is  numerous,  ranging  from 
the  large  manufacturers  down  to  the  country  black- 
smith. For  this  last  group  of  products,  when  the 
market  is  rising,  it  is  stated  that  buyers  purchase 
heavily  and  that  when  the  market  is  falling  they  stay  out. 
Thus,  they  alternately  increase  and  decrease  their  stocks. 

Sheets  are  not  stocked  by  producers  but  by  buyers, 
and  show  wide  fluctuations  in  prices.  Steel  pipe  is 
stocked  by  producers  as  well  as  by  buyers  and  the 
fluctuations  are  comparatively  small.  Wire  nails  are 
stocked  freely  by  producers. 

Why  is  it  that  the  steel  manufacturers  as  a  rule  do 
not  carry  stocks  of  any  consequence  in  the  case  of  rails, 
plates,  shapes  and  sheets?  Are  the  conclusions  sound 
that  are  stated  regarding  the  relation  of  stocks  to  prices? 


126.    Purchasing  Copper 

A  group  of  business  men  are  contemplating  the 
establishment  of  a  metal  manufacturing  plant  in 
Connecticut.  Their  organization  and  their  plans  for 
financing  the  undertaking  are  dependent  in  part  upon 
conditions  and  methods  of  buying  their  raw  materials. 
One  of  their  chief  raw  materials  will  be  crude  copper i. 

From  whom  can  they  purchase  copper?  Upon 
what  terms? 


'  General  references  on  copper:  Engineering  and  Mining  Journal, 
especially  May  11,  1912.  W.  H.  Weed,  The  Mine's  Handbook.  Mineral 
Industries.  Steel  and  Metal  Digest.  U.  S.  Geological  Survey,  Mineral 
Resources. 


MATERIALS  AND  EQUIPMENT  205 

127.     Leather  Company — Branch   Sales  Offices 

A  group  of  men  are  planning  to  acquire  control  of 
and  amalgamate  several  medium-size  companies  en- 
gaged in  tanning  upper  leather^.  The  new  company 
will  have  a  capitalization  of  §15,000,000. 

The  tanneries  that  are  to  be  included  in  this  amal- 
gamation are  located  in  Massachusetts  and  at  points  in 
the  Middle  West.  Heretofore  some  of  these  tanneries 
have  sold  direct  to  wholesale  consumers;  others  have 
sold  mainly  to  leather  merchants. 

The  new  company  plans  to  establish  a  sales  office 
in  Boston.  Will  it  be  advantageous  for  the  company 
to  establish  branch  sales  offices?    If  so,  where? 


128.    United  Shoe  Machinery  Company — 
Lease  System 

The  United  Shoe  Machinery  Company  manufac- 
tures a  large  part  of  the  machinery  used  for  attaching 
the  soles  to  their  uppers  and  for  the  incidental  and 
finishing  operations  connected  therewith  in  the  manu- 
facture of  shoes  in  the  United  States  and  in  foreign 
countries.  In  addition  to  shoe  machinery,  this  com- 
pany also  sells  large  quantities  of  supplies  for  use  in 
shoe  manufacturing. 

The  United  Shoe  Machinery  Company  produces 
several  types  of  equipment  for  shoe  factories^.  These 
include  machines  for  the  manufacture  of  shoes  by 
the  McKay  system,  turn  shoes,  metal  fastened  shoes, 
and  shoes  made  by  the  Goodyear  Welt  Process.  The 
Goodyear  Welt  shoes  are  the  best  quality  and  the 

1  A.  Heath  Onthank,  The  Tanning  Industry. 

2  For  information  on  the  technique  of  shoe  manufacturing,  see 
F.  J.  Allen,  The  Shoe  Industry;  also  the  Shoe  and  Leather  I^exicon 
pubUshed  by  the  Boot  and  Shoe  Recorder  Publishing  Company. 


206  MARKETING  PROBLEMS 

United  Shoe  Machinery  Company  specializes  primarily 
upon  its  Goodyear  machines.  The  United  Shoe  Ma- 
chinery Company  manufactures  about  300  different 
machines. 

The  existing  machines  are  subject  to  frequent  im- 
provement and  new  machines  are  invented.  The  com- 
pany maintains  an  experimental  department  with  in- 
ventors, draughtsmen,  and  an  experimental  machine 
shop.  Several  hundred  people  are  employed  in  this 
experimental  department  solely  for  the  improvement 
and  development  of  machines.  As  an  example  of  the 
attention  given  to  inventions,  in  the  development  of 
the  puUing-over  machine,  which  pulls  the  upper  leather 
over  the  last,  $1,000,000  was  spent  in  experimental 
work  before  the  machine  was  commercially  successful. 
This  pulling-over  machine  has  1,182  parts  in  the 
operative  head ;  862  of  these  parts  move  in  each  opera- 
tion. This  machine  Hke  many  of  the  others  has  a  very 
delicate  adjustment.  The  Goodyear  Stitcher  has  1,104 
parts  in  the  operative  head,  615  of  which  move  with 
each  operation. 

There  are  from  100  to  160  operations  in  manu- 
facturing a  shoe.  These  are  successive  operations. 
The  following  statement  by  the  United  Shoe  Machinery 
Company,  regarding  the  development  of  shoe  machin- 
ery, was  quoted  by  Judge  Putnam  in  his  Opinion  in 
the  United  Shoe  Machinery  Case  before  the  District 
Court  in  Boston,  March  18,  19151:— 

This  particular  business  of  shoe  machinery  started  about 
1860  with  the  McKay  sewing  machine.  There  are  men  now 
alive  who  saw  the  first  McKay  machine,  introduced  about 
1860.  At  the  time  the  machine  was  invented  by  Lyman 
Blake  there  was  not  in  a  shoe  factory  a  single  machine  out- 
side of  the  sewing  machine  for  stitching  the  uppers  except  a 
machine  for  making  strips  of  outsoles  and  a  knife  organized 
into  a  frame  which  roughly  shaped  the  outsole.  There  were 
few  crude  pegging  machines  in  use.  There  was  not  another 
machine,  and  shoes  were  made  absolutely  by  hand.  The 
business  was  insignificant  as  a  whole  even,  and  the  individual 
units  were  most  insignificant.    McKay  had  §140,000  when 

^  District  Court  of  the  United  States,  District  of  Massachusetts, 
No.  301,  United  States  of  America  Against  United  Shoe  Machinery 
Company,  Opinion  of  the  Court,  March  18,  1915,  pp.  14-18. 


MATERIALS  AND  EQUIPMENT  207 

he  bought  it.  He  thought  that  it  was  a  perfect  machine, 
but  his  $140,000  was  gone  before  he  was  able  to  sew  a  shoe 
on  it  commercially.  And  that  is  the  history  of  all  these 
machines.  They  have  been  most  expensive  in  their  develop- 
ment. One  unexpected  failure  after  another  has  broken 
the  hearts  of  the  inventors  and  promoters  before  success 
was  attained. 

Then  came  the  Civil  War,  and  the  demand  for  shoes  for 
the  soldiers  was  such  that  the  McKay  machine  was  able  to 
get  a  start  which  otherwise  it  might  not  have  gotten. 

At  the  moment  when  McKay  started  to  put  this  machine 
out,  Elias  Merwin  and  McKay  together  invented  for  this 
business  the  royalty  system,  and  that  system  has  prevailed 
throughout  the  shoe  machinery  business  from  the  beginning. 
It  was  a  system  of  leasing  machines,  adopted  in  order  that 
the  shoe  manufacturers  might  be  induced  readily  to  take 
the  machines.  Because  in  the  case  of  each  new  machine  it 
was  all  an  experiment,  the  shoe  manufacturers  did  not  dare 
to  take  such  machines  and  invest  their  capital  in  them. 
They  did  not  have  the  capital  to  invest.  This  policy  was 
satisfactory  to  the  last  degree,  and  from  McKay's  time  to 
the  present  day  the  royalty  and  lease  system  has  been  the 
prevailing  and  characteristic  method  of  the  shoe  machinery 
business,  so  far  as  the  great  variety  of  elaborate  and  refined 
machines  which  have  followed  the  first  McKay  machine 
are  concerned.  One  thing  which  the  Government  asks  in 
the  case  is  that  the  leasing  system  which  has  prevailed  from 
the  start  in  this  industry  should  be  destroyed.  If  the  court 
should  declare  illegal,  as  the  United  States  ask  it  to  do,  the 
protective  clauses  in  our  leases  which  we  have  put  there  to 
make  the  system  safe  and  practicable,  the  leasing  system 
would  have  to  go. 

There  are  two  important  aspects,  at  least,  in  which  this 
shoe  machinery  business  is  unique.  One  is  that  in  every 
single  step  in  this  business  up  to  the  point  where  today 
we  are  building  350  machines,  the  machines  have  been 
patented  machines,  always  patented  and  likely  to  be  patented 
for  an  indefinite  time  in  the  future, — because  this  art  is  not 
yet  exhausted.  Thirty-five  millions  of  dollars  of  the  property 
of  the  Shoe  Machinery  Company  is  in  the  hands  of  these 
shoe  manufacturers.  It  finances  them  to  that  extent.  It 
keeps  those  machines  in  repair,  so  that  the  shoe  manufac- 
turers have  no  question  of  maintenance;  no  cost  of  mainte- 
nance to  deal  with.  It  sees  that  information  calculated  to 
make  the  operation  of  the  machinery  more  efF(>ctive  is 
collected  and  disseminated  throughout  the  factories.  The 
shoe  manufacturers  who  deal  with  our  company  do  not  have 
to  be  on  the  watch  to  get  the  best  possible  machines.  They 
know  that  the  defendant  will  supply  them  with  the  best. 


208  MARKETING  PROBLEMS 

They  know  that  their  machinery  is  the  best  in  the  world, 
and  that,  if  better  is  devised,  they  will  surely  have  it.  There 
is  nothing  for  them  to  look  after  except  the  question  of 
labor,  the  purchase  of  material,  the  design  of  their  goods 
and  selling  them.  It  is  with  this  business,  not  with  any 
other,  that  the  court  has  to  determine  whether  what  these 
respondents  have  done,  what  contracts  they  have  made, 
have  been  in  the  normal,  orderly,  natural  line  of  development. 

McKay  had  his  lasting  machine;  Thompson  had  his 
lasting  machine ;  soon  Copeland  came  along  with  his  lasting 
machine;  all  patented;  and  the  impression  right  straight 
through  of  those  working  in  this  art  who  were  most  intel- 
ligible was  this,  that  you  might  do  many  things  with  ma- 
chinery in  shoe  manufacturing,  but  you  never  could  last 
by  machinery,  because  you  are  dealing  with  leather,  which 
is  a  most  difficult  thing  to  deal  with.  It  is  so  expensive 
that  every  scrap  should  be  saved  and  none  injured.  No 
two  adjacent  centimeters  of  leather  are  the  same  in  char- 
acter and  condition.  In  flexibility  and  capacity  for  stretch- 
ing no  two  spots  are  alike;  the  surface  character  constantly 
varies; and  yet  you  must  make  a  finished  shoe  without  waste 
or  loss  and  as  perfect  as  possible,  and  the  two  shoes  of  every 
pair  must  be  perfectly  matched.  It  was  the  general  belief 
that  the  lasting  machine  was  an  idle  dream. 

But  the  lasting  machine  has  come;  and  so  has  every 
other  machine  that  was  required  in  this  industry.  The 
150  processes  that  are  employed  in  making  shoes  are  all 
done  today  by  machinery.  It  is  only  a  short  time  ago  that 
there  was  some  talk  about  cutting  out  the  uppers;  men  said 
that  you  never  could  do  that.  Human  intelligence  seemed 
absolutely  essential  for  the  work.  Now  we  have  a  machine 
that  doubles  the  efficiency  of  the  human  operator  in  cutting 
or  dying  out  the  uppers,  and  does  it  much  better.  This  is 
the  clicking  machine. 

Moreover,  the  No.  5  laster  of  today  is  of  such  a  character 
that  the  Ideal  and  the  Chase  of  1899  are  practically  obsolete 
machines.  The  welter  and  stitcher  of  today  are  enormously 
more  useful,  efficient,  and  economical  than  those  of  1899, 
as  the  record  shows.  The  rough  rounder  has  been  perfected ; 
and  so  it  goes  right  straight  through  with  every  machine  in 
use  in  1899,  as  to  all  of  which  there  have  been  a  long  line 
of  patented  improvements,  one  succeeding  another  at  fre- 
quent intervals,  every  one  of  which  does  something  that 
previously  was  done  by  hand,  or  was  not  done  at  all.  So 
that  today  you  have  a  completely  developed  organization 
of  machinery  adapted  to  the  manufacture,  under  the  most 
favorable  conditions,  of  the  shoes  that  the  public  require. 
If  the  requirements  change,  the  machinery  is  at  once  changed 
to  meet  those  new  requirements,  and  there  has  been  a  con- 
tinuous and  large  gain  in  economy  and  efficiency. 


MATERIALS  AND  EQUIPMENT  209 

We  talk  chiefly  about  the  welt  shoe,  because  that  is  the 
most  important  shoe  of  all  and  the  one  to  which  our  business 
most  largely  relates.  There  were  only  17,000,000  of  them 
made  in  1898,  or  less  than  10%  of  all  shoes  made.  In  1910 
there  were  over  86,000,000  pairs,  and  the  proportion  of 
welt  shoes  to  all  shoes  made  has  been  steadily  increasing. 
And  why  this  increase?  Because  we  have  given  to  the  shoe 
manufacturers  between  1899  and  the  present  time,  better 
machines  and  radically  new  machines,  which  enabled  them 
to  make  those  shoes  successfully  and  at  a  low  cost.  We  are 
solely  responsible  for  this  entire  development.  The  whole 
credit  of  it  belongs  to  us. 

Now  it  is  not  unreasonable  to  look  at  this  complex  and 
complete  shoe  machinery  system  in  this  way.  Take  a  screw 
machine.  There  is  an  organization  on  one  frame  wliich 
feeds  the  bar,  cuts  off  the  right  length,  puts  in  the  screw 
thread,  makes  the  point,  makes  the  head,  and  cuts  the  slot 
in  the  head,  thus  making  a  complete  screw.  The  manu- 
facture of  a  shoe  in  a  modern  factory  is  practically  a  unitary 
operation,  like  the  making  of  a  screw;  every  one  of  the  many 
steps  being  coordinated  to  the  others,  as  if  all  were  taken  in 
a  single  machine.  Everything  is  aimed  at  one  product,  and 
every  single  machine  is  definitely  related  to  the  machines 
that  follow  it,  and  to  the  machines  that  are  back  of  it. 
These  machines  that  we  have  talked  about  as  being  classified 
into  "departments,"  cover  sometimes  machines  of  one  de- 
partment "tied"  to  those  of  another;  yet  there  is  no  con- 
secutive relation  of  one  department  to  another  in  the  order 
of  use  of  the  machines  in  making  a  shoe,  but  you  start  in 
with  one  machine  from  department  "A,"  and  take  the  next 
from  department  "D,"  and  then  one  from  "C,"  and  then 
one  from  "E,"  the  result  being  that,  when  you  get  through, 
they  have  all  been  interwoven,  and  the  sequence  worked 
out,  not  department  by  department,  but  one  machine 
after  another,  in  any  order  as  far  as  the  departments  are 
concerned.  That  is,  the  whole  is  a  continuous  process, 
aimed  at  one  unitary  result;  and  each  of  the  machines, 
whatever  the  distribution  among  the  different  departments, 
is  organized  to  succeed  the  prior  machine  efficiently,  and 
to  prepare  the  shoe  for  the  next  machine.  Any  one  of  the 
machines  may  spoil  a  shoe;  and  the  result  is  that  one  of  the 
great  problems  of  this  art  has  been  to  organize  each  machine, 
so  that  not  only  will  it  do  its  work  without  injury  to  the 
shoe,  but  that  there  will  be  no  difficulty  when  you  come  to 
the  subsequent  machines.  The  work  of  each  machine  must 
be  done  so  that  the  next  machine  will  work  with  the  required 
accuracy. 

Of  the  300  machines  manufactured  by  the  United 
Shoe  Machinery  Company,  about  200  are  sold  outright, 


210  MARKETING  PROBLEMS 

or  occasionally  leased  at  the  option  of  the  user.  These 
machines  that  are  sold  outright  do  not  require  expert 
attention  in  upkeep. 

About  100  machines  are  not  sold.  Seven  of  these 
machines  that  are  not  sold  are  leased  to  shoe  manu- 
facturers on  condition  that  they  pay  a  royalty  ranging 
from  less  than  one  cent  a  pair  to  six  cents  a  pair.  The 
highest  royalty  paid  on  a  pair  of  shoes  in  the  manu- 
facture of  which  United  Shoe  Machinery  Company 
machines  are  used  is  about  six  cents.  The  two  largest 
royalty  paying  machines  are  the  Goodyear  Welter 
and  Stitcher  which  are  necessary  for  the  manufac- 
ture of  Goodyear  Welt  shoes.  These  machines  are 
leased  together.  The  company  does  not  lease  them 
separately. 

The  supplementary  machines,  such  as  the  channel- 
ing machine  and  numerous  others,  are  furnished  with- 
out charge  to  shoe  manufacturers  who  use  the  royalty- 
paying  machines.  These  machines  that  are  furnished 
without  charge  are  known  as  auxiliary  machines.  They 
cannot  be  obtained  unless  the  Goodyear  Welter  and 
Stitcher  are  used.  These  auxiliary  machines  enable 
faster  and  better  production  as  well  as  a  saving  in  cost 
to  the  shoe  manufacturer. 

The  leases  of  the  United  Shoe  Machinery  Company 
ordinarily  are  for  seventeen  years.  They  require  that 
the  shoe  manufacturer  use  the  machines  as  nearly  to 
capacity  as  possible.  The  leases  also  provide  that  the 
United  Shoe  Machinery  Company  has  the  right  to 
inspect  the  machines  at  any  time  and  replace  any 
machine  at  the  United  Shoe  Machinery  Company's 
option  without  expense  to  the  shoe  manufacturer. 
They  require  further  that  repair  parts  shall  be  pur- 
chased only  from  the  United  Shoe  Machinery  Com- 
pany. The  company  maintains  a  service  department 
in  each  of  the  shoe  manufacturing  districts  in  the 
United  States,  so  that  any  adjustment  of  the  machines 
or  repair  work  can  be  taken  care  of  immediately.  The 
United  Shoe  Machinery  Company  oftentimes  shifts 
machines  from  one  factory  where  they  are  not  required 
to  another  factory  which  needs  additional  equipment. 


MATERIALS  AND  EQUIPMENT  211 

Machines  which  are  used  for  metal  fastenings, 
heelers,  and  eyelet  machines  are  furnished  to  shoe 
manufacturers  on  condition  that  the  supplies  for  these 
machines  be  purchased  only  from  the  United  Shoe 
Machinery  Compan3\  The  price  of  the  suppHes  in- 
cludes the  royalty.  The  metal  fastenings  include 
screws,  wire,  and  so  on.  The  machines  that  insert 
these  metal  fastenings  are  complicated,  and  it  is 
necessary  that  the  screw  wire,  for  example,  be  of 
exactly  the  right  size,  thread,  and  of  the  right  malle- 
ability in  order  chat  the  machine  may  operate  properly. 
Similarly  with  the  eyelet  machine.  The  eyelets  are 
fed  through  a  raceway,  and  the  delicate  adjustment 
of  the  machine  requires  accuracy  in  the  materials. 

The  amount  of  materials  used  by  these  metal  fasten- 
ing machines,  heelers,  and  eyelet  machines  measures 
the  amount  of  work  done.  The  number  of  slugs  put 
in  the  heel  of  a  shoe,  for  example,  varies  according  to 
the  kind  of  shoe  and  the  style  adopted  by  the  manu- 
facturer. There  is  no  charge  for  this  group  of  machines 
except  for  what  is  included  in  the  price  of  the  materials. 
All  other  materials  sold  by  the  United  Shoe  INIachinery 
Company  are  sold  on  the  ordinary  commercial  basis  in 
competition  with  other  supply  manufacturers. 

From  the  standpoint  of  the  United  Shoe  Machinery 
Company,  what  are  the  merits  of  this  system  of  mar- 
keting? What  are  the  merits  of  the  system  from  the 
standpoint  of  a  shoe  manufacturer? 


129.    Manchester  Textile  Machinery  Company — 
Accepting  Payment  in  Stock 

Prior  to  the  war  the  Manchester  Textile  Machinery 
Company,  which  manufactures  spinning  and  weaving 
machinery  on  a  large  scale  for  cotton  mills,  had  accepted 


212  MARKETING  PROBLEMS 

capital  stock  in  newly  organized  mill  companies  in  the 
Southern  states  in  part  payment  for  machinery.  The 
machinery  was  sold  outright,  not  leased.  During  1919, 
the  company  received  orders  for  machinery,  to  be  paid 
for  in  cash  upon  delivery,  which  disposed  of  its  entire 
output  for  more  than  two  years  in  advance.  When 
demand  again  slackens,  the  company  probably  will  have 
occasion  to  consider  whether  or  not  it  will  resume  its 
previous  policy  of  accepting  capital  stock  in  new  mills 
in  part  payment  for  its  sales. 

What  factors  should  be  taken   into  account  in 
deciding  this  question  of  policy? 


130.    Eagle  Motor  Company — Truck  Sales 

The  Eagle  Motor  Company,  a  well-established 
automobile  company,  which  has  been  engaged  in  the 
manufacture  of  medium-price  pleasure  cars,  has  decided 
to  add  small  and  medium-size  trucks  to  its  output. 
The  pleasure  cars  have  been  sold  to  dealers  through 
exclusive  distributors  located  in  the  larger  cities. 

How  will  the  sales  problems  of  the  truck  business 
differ  from  those  of  the  pleasure  car  trade? 


PART  VI 

SALES  MANAGEMENT^ 

THE  problems  in  this  section  illustrate  the  rela- 
tions of  the  sales  department  to  other  depart- 
ments in  a  business,  relations  to  customers, 
market  analysis,  the  determination  of  the  selling  points 
of  the  product,  sales  organization,  selection  and  train- 
ing of  salesmen,  management  of  salesforce,  and  policies 
in  regard  to  guarantee,  cancellations,  and  return  goods. 

131.  White  Star  Farm  Machinery  Company — 
Production  Schedule 

The  White  Star  Farm  Machinery  Company  manu- 
factures farm  implements  on  a  large  scale.  The  com- 
pany has  found  it  necessary  to  plan  its  schedule  of 
manufacture  twelve  to  fifteen  months  in  advance  of 
sale.  The  manufacturing  period  is  long.  The  selUng 
season  each  year  is  short.  The  company  sells  its 
products  under  its  own  brands  and  distributes  directly 
to  retailers  through  its  own  wholesale  branches. 

How  is  this  company  to  determine  the  quantity  of 
implements  to  be  manufactured  each  year? 


>  General  references  on  Sales  Management: — A.  W.  Shaw,  An 
Approach  to  Business  Problems.  Melvin  T.  Copeland,  Busitiess  Sta- 
tistics. P.  T.  Cherington,  Advertising  as  a  Business  Force.  A.  W. 
Shaw  Company,  The  K?iack  of  Selling;  Organizi)ig  for  Increased  Sales; 
Handling  Salesmen  at  Lower  Cost;  Graphical  and  Statistical  Sales  Helps; 
Library  of  Business  Practice.  Butler,  DeBower  and  Jones,  Marketing 
Methods.  A.  W.  Douglas,  Traveling  Salesjnanship.  E.  C.  Simmons 
"The  'Big  Things'  in  Selling,"  System,  February,  1920,  pp.  257-260. 

213 


214  MARKETING  PROBLEMS 

132.  Oriole  Company — Special  Order  Department 

The  Oriole  Company  of  Chicago  manufactures 
clothing  sold  under  its  own  nationally  advertised  brand. 
All  its  product  is  manufactured  in  its  own  factory. 
The  Oriole  Company  sells  to  retailers  who  have  exclu- 
sive agencies.  It  has  customers  in  all  parts  of  the 
United  States. 

The  Oriole  Company  comes  into  competition  with 
tailors-to-the- trade,  the  so-called  wholesale  tailors  who 
make  clothing  to  measure  in  their  plants  in  New  York 
and  Chicago  on  orders  and  specifications  sent  to  them 
by  their  agents.  These  wholesale  tailors  furnish  their 
agents  each  season  with  well-prepared  style  books  and 
with  samples  of  the  fabrics  that  are  carried  in  stock. 

The  Oriole  Company  is  considering  the  establish- 
ment of  a  "special  order"  department  in  which  orders 
for  individual  suits  and  overcoats  "to  measure"  may 
be  filled.  If  the  department  is  established,  the  orders 
will  be  received  from  the  retailers  who  now  carry  the 
ready-to-wear  product  of  the  company.  It  is  not 
planned  to  establish  any  agencies  except  in  the  stores 
that  carry  the  ready-to-wear  product  of  the  Oriole 
Company. 

What  would  be  the  advantages  and  disadvantages 
to  the  Oriole  Company  of  establishing  this  "special 
order"  department^?  If  it  were  to  be  established, 
should  it  be  featured  prominently  in  the  advertising 
of  the  Oriole  Company  and  of  its  retail  agents? 


A.  D.  Joyce,  "Training  Men  to  Handle  a  Diversity  of  Products," 
Printers'  Ink,  February  12,  1920,  pp.  3-12.  W.  D.  Scott,  "Testing 
Prospective  Salesmen,"  Printers'  Ink,  February  17,  1916,  pp.  61-66. 
R.  E.  Hills,  "The  Salesman  Problem,"  National  Wholesale  Grocers' 
Bulletin,  April  2,  1917.  Leon  Allen,  "Facts  You  Must  Have  When 
Routing  Salesmen." 

*  On  the  interrelation  of  departments,  see  A.  W.  Shaw,  An  Approach 
to  Business  Problems. 


SALES  MANAGEMENT  21^ 

133.  DoRWAY    Manufacturing    Company — Special 

Orders 

The  Dorway  Manufacturing  Company  produces 
builders'  hardware  of  medium  and  high  grade.  Its 
product  is  sold  to  wholesalers  and  also  direct  to  large 
retailers  who  take  contracts  for  the  builders'  hardware 
required  for  big  construction  jobs.  The  Dorway 
Company  carries  several  thousand  items  in  stock. 
Frequently  there  is  a  demand  for  special  styles  and 
sizes  of  hardware  for  individual  jobs  which  cannot  be 
filled  from  the  stock  patterns. 

What  must  the  Dorway  Company  consider  in 
deciding  whether  or  not  to  cater  to  this  special  order 
trade? 


134.  Star  Paper  Company — Stock  to  be  Carried 

The  Star  Paper  Company,  located  in  Kalamazoo, 
Michigan,  has  a  paper  mill  with  six  machines.  The 
company  manufactures  about  one  thousand  grades, 
weights,  and  sizes  of  paper.  The  average  size  order 
is  ten  to  twenty  tons.  On  special  orders  the  minimum 
order  is  three  tons.  About  50%  of  the  orders  are  stock 
orders,  and  about  50%  special  orders.  The  company 
normally  carries  about  3,000  tons  in  stock.  The  out- 
put of  the  mill  is  sold  to  jobbers. 

The  Star  Paper  Company  has  acquired  the  owner- 
ship of  a  second  mill  with  five  paper  machines.  When 
the  second  mill  was  acquired,  the  sales  manager  of  the 
Star  Paper  Company  advocated  a  policy  of  carrying 

Printers'  Ink,  November  27,  1919,  pp.  162-170.  William  O'Neil, 
"Straight  Salary  for  Salesmen,"  Printers'  Ink,  April  8,  1920,  pp. 
119-128.  System.  Printers'  Ink.  Advertising  and  Selling.  Sales 
Management.     M  arketing.    The  Sale^  Manager. 


216  MARKETING  PROBLEMS 

5,000  tons  in  stock  for  the  two  mills.  If  this  were  to 
be  done,  the  advantages  of  the  combination  of  the  two 
mills  would  be  largely  eliminated. 

What  plan  should  be  adopted  to  determine  the 
amount  of  stock  to  be  carried? 


135.  Exeter  Wagon  Company — Standardization 

The  following  schedule  for  manufacturers  of  farm 
wagons  was  issued  by  the  Conservation  Division  of  the 
War  Industries  Board  July  18,  1918: 

1.  class  "a"  farm  wagons  and  gears 

(a)  Capacity:  The    manufacture    of    farm    wagons    to    be 

restricted  to  four  capacities,  using  cast  skeins  as 
follows : 

Light  1500  lbs.  capacity,  skein  size  23^" 
Medium  3000  lbs.  capacity,  skein  size  2%" 
Standard  4500  lbs.  capacity,  skein  size  33^" 
Heavy      6000  lbs.  capacity,  skein  size  33^^" 

(b)  Stenciling:  All  gears  to  be  stenciled  as  follows,  skein 

sizes  not  to  appear. 
Light        1500  lbs.  capacity 
Medium   3000  lbs.  capacity 
Standard  4500  lbs.  capacity 
Heavy      6000  lbs.  capacity 

(c)  Track:  The  manufacture  of  wagons  to  be  restricted  to 

one  standard  track  of  56"  measured  from  center  to 
center  of  tire  on  ground. 

(d)  Width  between  Stakes:  Wagons  to  be  made  of  one  width, 

viz.,  38"  between  stakes. 

(e)  Stakes:  Where  stationary  stakes  are  used,  they  are  to 

be  furnished  in  two  heights  only,  viz.,  8"  or  13"  over 
top  of  iron,  any  manufacturer  to  have  the  privilege 
of  using  in  place  of  the  stationary  stake  an  adjustable 
or  removable  stake,  but  not  both  types. 

(f)  Reach:  Reach    construction    to    be    restricted    to    the 

rectangular  type  only. 


SALES  MANAGEMENT  217 

(g)  Rear  Gear:  Only  one  gear  with  but  one  height  of  bolster 

to  be  made  for  each  capacity, 
(h)  Front  Gear:  Front  gear  to  be  made  in  drop,  slip  or  coach 

tongue  type, 
(i)    Wagon  Boxes.  Wagon  boxes  to  be  made  in  one  width 

only,  viz.,  38"   between  bolster   stakes  and   without 

foot-boards.  * 

The  Exeter  Wagon  Company,  manufacturers  of 
farm  wagons,  located  in  a  large  city  on  the  Ohio  River, 
with  a  market  in  neighboring  states,  reduced  the  num- 
ber of  front  and  rear  gears  in  its  product  from  254  to 
16  in  accordance  with  this  schedule.  After  the  close 
of  the  war,  a  local  demand  for  discarded  types  of  farm 
wagons  still  persisted  in  parts  of  the  company's  sales 
territory.  The  large  implement  manufacturers  had 
announced  that  they  had  decided  to  adhere  perma- 
nently to  this  schedule.  There  was  a  widespread  senti- 
ment among  manufacturers  that  the  schedule  should 
be  universally  followed. 

What  attitude  should  the  Exeter  Wagon  Company 
take  toward  the  continued  observance  of  this  schedule? 


136.  Saginaw  Paint  Company — Variety  of  Products 

The  following  schedule  for  conservation  was  issued 
by  the  Commercial  Economy  Board  of  the  Council  of 
National  Defense  January  21,  1918: 

To  the  Paint  and  \'arnish  Manufacturers  of  t  he  United  States : 
The  Commercial  Economy  Board  has  now  completed  its 
inquiry  regarding  practical  economies  in  the  Paint  and 
Varnish  industry  in  order  to  conserve  labor  and  materials 
and  to  lessen  the  amount  of  capital  tied  up  in  manufacturers' 

•  Similar  srhodulrs  wore  issued  at  the  same  time  for  Valley  Wagons 
and  Gears,  Mountain  Wafions  and  Gears,  One-Horse  Wagons  and 
Gears,  and  Farm  Truck  Gears. 


218 


MARKETING  PROBLEMS 


and  retailers'  stocks.  This  inquiry  has  covered  the  require- 
ments of  the  government  as  well  as  the  interests  of  all  the 
branches  of  the  industry  Inasmuch  as  large  quantities  of 
flaxseed  for  linseed  oil,  and  tin  for  containers  are  brought 
from  abroad  in  ships,  it  is  especially  necessary  to  husband 
our  resources  of  these  materials  in  order  to  lighten  the 
demands  upon  shipping. 

The  Board  therefore  requests  paint  and  varnish  manu- 
facturers to  reduce  their  lines  for  the  retail  trade  in  accord- 
ance with  the  following  recommendation  to  take  effect 
July  1,  1918: 


Paints,  Enamels, 
Stains 

Maximum 
No.  of 

Shades  or 
Colors 

Varnishes 

Maximum 
No.  of 
Grades 

House  Paint 

Flat  Paint 

Enamels 

32 
16 

8 
8 
6 
2 
12 
8 
8 
8 

Penetrating  or  Spirit 

Stains 

Oil  Colors 

10 
30 

Floor  Paint   

Porch  Paint 

Roof  and  Barn  Paint 

Shingle  Stains 

Carriage  Paint .... 

Architectural   (In- 
terior &  Exterior) 

Auto  and  Carriage 
Varnishes       and 
Japans 

10 
12 

Oil  Stains 

Marine  Varnishes . . 
Miscellaneous 
Varnishes 

4 

Varnish  Stains 

28 

(All  of  the  above  are 
black  or  white,  exce 
Under  the  heading  ( 
recommending  a  ma: 
ber  of  30,  it  is  und 
blacks  are  included ; 
such  as  Light,  Med 
in   the  various  col 
included.) 

exclusive  of 
pt  oil  colors 
3il  Colors  in 
icimum  num- 
erstood  that 

but  shades 
um  or  Dark 
ors  are  not 

(Under  the  last  h 
understood  that  all  ^ 
included  that  are  no 
mentioned    in    the 
classes,  and  in  addi 
driers,  asphaltums,  ( 

sading   it  is 
/^arnishes  are 
b  specifically 
first     three 
tion,  japans, 
;tc.) 

Manufacturers  are  further  requested  to  eliminate  the 
following  sizes  of  cans: 

Half-gallon  cans  throughout  the  entire  line  of  paints  and 
varnishes. 

All  cans  smaller  than  half-pints,  throughout  the  entire 
line  of  paints  and  varnishes. 

Pint  cans  in  house  paints,  flat  paints,  floor  paints,  porch 
paints,  enamels. 

All  cans  smaller  than  gallons  in  barn  and  roof  paint  and 
shingle  stain. 

All  cans  smaller  than  pints  in  all  clear  varnishes  and 
varnish  removers. 


SALES  MANAGEMENT  219 

All  two  and  three-pound  cans  in  the  entire  line. 

All  users  of  tin  containers  can  do  much  to  relieve  the 
situation  and  clear  the  future  by  substitution  of  other  pack- 
ages where  practicable,  and  by  not  overbuying  considerably 
in  advance  of  actual  use. 

Manufacturers  are  urged  to  utilize  existing  stocks  of 
color-cards,  price  lists,  etc.,  even  though  some  of  these  may 
show  colors,  grades  or  sizes  of  cans  that  will  he  dropped  as 
a  result  of  these  recommendations.  Such  color-cards  and 
price  lists  can  be  stamped  to  indicate  which  shades  or  colors, 
grades  and  sizes  have  been  eliminated  in  accordance  with 
the  request  of  the  Commercial  Economy  Board  and  thereby 
avoid  wasting  any  materials  already  manufactured. 

Retailers  are  urged  not  to  return  to  manufacturers 
colors,  grades,  or  sizes  of  cans  which  may  be  dropped  as  a 
result  of  these  recommendations. 

Commercial  Economy  Board, 
Council  of  National  Defense. 
72-1000 

This  schedule  was  carried  out  during  the  war  and 
was  continued  by  the  trade  by  common  consent  for  an 
indefinite  period  after  the  signing  of  the  armistice. 
The  only  exception  was  the  reintroduction  of  the  half- 
gallon  size  of  cans  by  one  of  the  largest  manufacturers. 
The  action  of  that  company  in  offering  the  half-gallon 
size  to  its  customers  was  followed  by  the  rest  of 
the  trade. 

The  Saginaw  Paint  Company,  prior  to  1918,  had 
manufactured  48  shades  of  house  paint  and  a  similarly 
wide  variety  of  other  paints.  What  must  this  com- 
pany consider  in  determining  whether  or  not  to  continue 
to  follow  this  restricted  schedule  in  the  future? 


137.  Spartan  Electric  Company — Water  Turbines 

The  Essex  Manufacturing  Company  makes  water 
turbines  and  all  the  parts  pertaining  thereto.     It  also 


220  MARKETING  PROBLEMS 

manufactures  electrical  machinery  and  is  therefore  able 
to  bid  on  complete  hydro-electric  installations.  There 
are  two  other  large  electrical  companies  which  do  not 
make  water  turbines.  One  of  these  is  the  Spartan 
Electric  Company. 

Should  the  Spartan  Electric  Company  enter  into  an 
agreement  with  some  water  turbine  manufacturer  to 
sell  the  latter's  output  of  water  turbines?  Should  the 
Spartan  Electric  Company  act  as  primary  contractor, 
taking  full  responsibility  for  all  machinery,  or  should 
it  plan  to  make  bids  on  a  coordinate  basis  with  the 
turbine  manufacturer  whereby  the  Spartan  Electric 
Company  would  accept  responsibility  only  for  the 
electrical  apparatus. 


138.  Dakota  Company — Plans  of  Distribution 

The  Dakota  Company,  manufacturing  a  full  line 
of  agricultural  machinery,  has  decided  to  add  farm 
tractors  to  its  products.  The  company  has  wholesale 
branches  located  at  strategic  points  for  the  distribution 
of  its  output.  Its  products  are  branded  and  retail 
dealers  have  been  granted  local,  exclusive  agencies  for 
the  machines  already  manufactured. 

Should  the  Dakota  Company  distribute  the  trac- 
tors through  its  present  retail  dealers,  or  through 
automobile  dealers?  What  must  be  taken  into  account 
in  reaching  a  decision? 


SALES  MANAGEMENT  221 

139.  Elm  Wholesale   Grocery   Company — Credit 

The  Elm  Wholesale  Grocery  Company,  located  in 
St.  Louis,  received  an  order  from  one  of  its  salesmen 
for  merchandise  amounting  to  S250.  The  order  was 
given  to  the  salesman  by  J.  G.  Straw,  a  retail  grocer 
in  a  town  of  ten  thousand  population  in  southern 
Illinois.  This  was  the  first  order  that  had  been  received 
from  Mr.  Straw. 

The  following  net  worth  statement  was  submitted 
by  Mr.  Straw ^i 

FINANCIAL  STATEMENT 
Year  Ending  January  1,  1919. 
Assets  LinbiUties 

Cash  on  hand S     723 .  78        Accounts  Payable . .  8  2,204 .  43 

Accounts  Receivable    6,603.05        Bills  Payable 20,270.43 

Merchandise  Balance 1,136.71 

Inventory 15,005.34 

Equipment  Inventory    1,279.40 


$23,611.57  §23,611.57 

The  salesman  also  found  that  Mr.  Straw's  annual 
sales  are  about  $79,000;  that  he  is  taking  somewhat 
less  than  one-half  of  his  cash  discounts;  that  he  is 
buying  from  about  ten  wholesale  grocers  with  occa- 
sional, scattered  purchases  from  others;  that  half  of 
his  business  is  credit;  that  his  stock-turn  is  4.5  times 
a  year,  his  gross  profit  18%,  and  his  total  expense  15%. 
He  does  not  charge  himself  with  merchandise  taken 
from  the  store  for  family  use. 

The  town  in  which  Mr.  Straw's  store  is  located  is 
in  a  prosperous  district,  and  Air.  Straw  has  a  high 
standing  among  the  merchants  in  the  town.  The  Elm 
Company  heretofore  has  not  succeeded  in  selling  any 
substantial  quantity  of  merchandise  in  this  town.  It 
desires  to  secure  a  larger  share  of  the  business  there. 
Should  this  order  be  accepted? 


'  Rpfcrcnrrs  on  crpflif :  R.  P.  EUiriKer  and  D.  E.GoJiph,  Credits  and 
Collections.     J.  E.  Hagcrty,  Mercantile  Credit.     E.  II.  Gardner,  New 


222  MARKETING  PROBLEMS 

140.  Shenandoah   Paper  Company — Relations  to 

Jobbers 

The  Shenandoah  Paper  Company,  with  a  plant 
located  in  New  York,  manufactures  coated  papers. 
These  coated  papers  are  similar  to  the  products  of 
numerous  other  paper  mills,  although  of  slightly  better 
quality  than  the  products  of  most  of  its  competitors. 
The  company  has  a  small  mill  and  is  not  equipped  to 
operate  as  economically  as  the  big  mills  on  large  orders. 
The  Shenandoah  Paper  Company  therefore  specializes 
on  small  runs  and  matched  orders  because  the  scale  of 
operation  is  sufficiently  small  to  permit  careful 
supervision. 

The  Shenandoah  Paper  Company,  like  most  of  its 
competitors,  has  sold  its  product  through  paper  job- 
bers by  whom  the  product  in  turn  is  sold  to  job  printers. 
Although  the  company's  product  is  being  sold  under 
its  own  brand,  nevertheless  the  company  believes  that 
in  many  instances  the  jobbers  are  not  giving  its  products 
the  attention  it  deserves. 

Should  the  Shenandoah  Paper  Company  estabUsh 
sales  branches?    If  so,  where? 


141.  Manhattan  Paint  Company — New  Retail 
Outlets 

The  Manhattan  Paint  Company  produces  a,  full 
line  of  paints  and  varnishes.  The  company  has 
national  distribution  through  hardware  stores.  Its 
products  are  well  advertised. 

One  of  the  directors  of  the  company  has  proposed 
that  the  present  marketing  policy  should  be  modified 

Collection  Methods.  W.  A.  Prendergast,  Credit  and  Its  Uses.  A.  W. 
Shaw  Company,  Credits,  Collections  and  Finance.  Ronald  Press, 
Mercantile  Credits.  National  Association  of  Credit  Men,  Bulletin. 
National  Association  of  Credit  Men,  The  Credit  Monthly. 


SALES  MANAGEMENT  223 

and  that  the  company  should  seek  to  sell  its  products 
to  retail  drug  stores  as  well  as  to  retail  hardware  stores. 
How  would  such  a  change  in  policy  probably  affect 
the  production,  sales,  and  advertising  departments  of 
the  Manhattan  Paint  Company? 


142.  PoNTiAC  Milling  Company — Elk  Wholesale 
Grocery  Company 

The  Pontiac  Milling  Company  of  Duluth  has  a 
capacity  of  6,300  barrels  of  flour  daily.  This  is 
a  medium-sized  plant.  The  company  sells  the  flour 
that  it  manufactures  entirely  to  wholesale  grocers. 
A  portion  of  the  product  is  sold  under  the  Pontiac 
brand  and  the  remainder  under  wholesalers'  private 
brands.  The  market  of  this  company  is  ahnost 
exclusively  in  the  Middle  West. 

Among  the  customers  of  the  Pontiac  Milling  Com- 
pany is  the  Elk  WTiolesale  Grocery  Company  of  St. 
Paul.  This  wholesale  grocery  company  has  been  pur- 
chasing about  18,000  barrels  of  flour  a  year  from  the 
Pontiac  Milling  Company. 

In  April,  1920,  the  Pontiac  Milling  Company 
received  the  following  letter  and  statement  from  the 
Elk  Wholesale  Grocery  Company,  offering  the  Pontiac 
Milhng  Company  an  opportunity  to  buy  preferred 
stock  in  the  wholesale  grocery  company.  The  Pontiac 
Milling  Company  is  a  profitable  business,  having  paid 
regularly  8%  dividends  for  several  years  and  at  the 
same  time  accumulating  a  surplus.  It  is  a  close  cor- 
poration. The  company  can  purchase  one  hundred 
shares  of  the  Elk  Wholesale  Grocery  Company's 
preferred  stock  without  seriously  depleting  its  working 
capital. 

What  reply  should  be  given  to  this  letter  from  the 
Elk  Wholesale  Grocery  Company? 


224  MARKETING  PROBLEMS 

ELK  WHOLESALE  GROCERY  COMPANY 

St.  Paul,  Minnesota. 

April  2,  1920. 
Pontiac  Milling  Company, 

Duluth,  Minnesota. 
Gentlemen: 

Incident  to  the  unusual  sales  increase  of  this  business 
during  the  years  1918  and  1919,  when  an  addition  in  volume 
amounting  to  $2,227,000  was  added  thereto,  we  have 
gradually  come  to  the  requirement  of  added  capital,  which 
we  propose  to  obtain  from  the  sale  of  an  issue  of  One  Million 
Dollars  7%  Guaranteed  Cumulative  Preferred  Stock. 

There  are  two  reasons  why  we  have  set  aside  a  part  of 
this  issue  to  be  taken  by  our  manufacturing  friends.  First, 
because  of  the  unusual  security  and  fair  earning  upon  the 
stock,  and  second,  because  of  the  high-grade  service  in  dis- 
tribution which  this  institution  at  all  times  has  afforded 
legitimate  manufacturers  interested  in  the  trade  affairs  of 
this  territory. 

Assuring  you  that  the  future  administration  of  our 
business  will  be  conducted  in  proper  respect  to  any  material 
consideration  offered,  I  beg  to  call  your  respectful  attention 
to  the  enclosed  data. 

Very  truly  yours, 

(signed)     William  Parker, 

President. 

CONTRACT  OF  PURCHASE 
Authorized  Capital  Par  Value 

$2,000,000.00  Per  Share  $100.00 

ELK  WHOLESALE  GROCERY  COMPANY 
St.  Paul,  Minnesota 

I  hereby  purchase shares  of  "Series  A  Preferred 

Capital  Stock"  of  the  ELK  WHOLESALE  GROCERY  COMPANY 

OF  ST.  PAUL,  MINNESOTA, 

and  hereby  pay  therefor  the  sum  of  $100.00  per  share  in  cash. 

As  soon  as  this  subscription  is  accepted  by  the  Company  a 
Certificate  thereon  is  to  be  issued  to  me  of  the  date  of  this  sub- 
scription showing  that  said  stock  is  fully  paid  and  non-assessable, 
with  interest  accruing  at  the  rate  of  7  per  cent,  from  above  date. 

I  hereby  for  my  heirs,  executors  and  assigns,  irrevocably 
appoint  the  president  of  the  Elk  Wholesale  Grocery  Company  as 
my  agent  and  attorney  in  fact  to  vote  all  stock  issued  to  me  under 
this  subscription  in  favor  of  renevfing  the  present  corporate  exist- 
ence of  the  Company  as  provided  for  by  law  upon  the  expiration 
of  its  charter. 

In  case  I  desire  to  sell  at  any  time  all  or  any  part  of  my  stock, 
I  agree  to  notify  the  Corporation  of  such  intention  and  give  it  the 
opportunity  to  purchase  same. 

This  contract  and  agreement  is  not  binding  upon  the  Corpora- 
tion until  accepted  by  it  by  written  notice  to  the  purchaser  and  no 


SALES  MANAGEMENT  225 

conditions  other  than  those  printed  herein  shall  be  binding  on  the 
Company. 

Signed 

Address 

Date 

St.  Paul,  Minn.,  Tvlarch  27th,  1920. 

TO  THE  PUBLIC: 

In  connection  with  our  offer  of  $1,000,000.00,  17o  Cumulative 
Series  A  Preferred  Stock  of  this  company,  I  take  pleasure  in  giving 
you  the  following  information : 

THE  PREFERRED  STOCK 

The  Preferred  Stock  is  preferred  as  to  as.sets  and  dividends; 
non-assessable;  dividends  are  cumulative  and  payable  semi- 
annually, March  15th  and  September  15th.  Retireable  at  105. 
Par  Value  $100.00  per  share. 

This  institution  was  founded  in  1885,  35  years  ago.  The 
present  executive  officers  and  management  have  been  in  charge 
during  the  past  25  years,  and  are  responsible  for  the  policy  which 
has  developed  the  business  to  its  present  large  proportions. 

The  Company  conducts  a  Wholesale  Grocerj',  Candy,  ColTee 
and  Notion  business,  including  a  full  grocery  line,  candy  factoiy. 
coffee  roasting  plant,  and  manufactures  and  packs  its  own  Pancake 
Flours,  Spices,  Extracts,  Jellies,  Jams,  Preserves,  etc. 

The  Elk  Wholesale  Grocery  Company  is  one  of  the  largest 
wholesale  grocers  in  the  west.  Its  plant  consists  of  two  warehouses, 
one  of  six  stories  and  basement;  the  other  of  eight  stories  and  base- 
ment; the  same  totaling  252,000  square  feet  of  floor  space.  The 
two  buildings  are  adjacent,  the  alley  between  them  being  bridged 
at  the  2nd,  3rd,  4th,  5th  and  Gth  floors,  which  makes  the  entire 
plant  compact  and  facilitates  quick  and  economical  handling  of 
merchandise.  The  location  of  this  property  is  one  of  the  choicest 
in  St.  Paul  for  wholesale  purposes,  with  ample  trackage. 

The  company's  warehouses  and  factories  are  equipped  through- 
out with  Sprinkler  system  and  the  latest  device  for  handling  goods 
by  chutes,  conveyors,  elevators,  etc.  Depreciation  charges  are 
made  to  the  full  extent  allowed  by  the  U.  S.  Government. 

The  company's  traveling  sales  force  covers  a  wide  scope  of 
territory,  including  Minnesota,  Wisconsin,  Iowa,  South  Dakota, 
North  Dakota,  Nebraska,  and  parts  of  Montana  and  Wyoming. 

The  company's  main  house  is  at  St.  Paul.  It  is  at  present 
conducting  a  branch  house  at  Sioux  Falls.  S.  Dak.  This  branch 
was  opened  last  November,  and  has  developed  very  rapidly  since 
that  time. 

THE  ORGANIZATION 

The  company  employs  approximately  425  people  to  conduct 
its  business.  All  the  executive  heads  have  been  with  the  insti- 
tution for  many  years,  and  will  continue  to  handle  and  direct  the 
affairs  of  the  business. 

TRADE  MARKS 

The  company  has,  during  the  past  25  years,  developed  a  line 
of  trade  marks  which  are  known  in  every  home  in  its  trade  terri- 
tory, and  are  of  inestimable  value.    The  best  known  are  as  follows; 


22G  MARKETING  PROBLEMS 

The  Elk.  This  is  our  house  trade  mark,  and  appears  on  all 
our  packages  and  labels.  It  stands  as  our  guarantee  of  quality 
and  value. 

Canned  Goods  Coffees  Teas  Cigars 

Golden  Hour  Golden  Hour  Golden  Hour  Eagle 

Yellowstone  Yellowstone  Yellowstone  Hunter 

North  Star  North  Star  North  Star  San  Juan 

Excelsior  Sunrise  Tidbits 

Pine  Tree  Arrow 

CAPITALIZATION 

Capital  Stock,  Preferred $1,400,000 

Common  Stock 400,000 

Surplus 1,192,808 

ASSETS 

The  assets  of  the  company  January  1st,  1920,  were  $3,910,552. 
With  the  new  capital  that  this  issue  of  Preferred  Stock  will  provide 
the  assets  will  approximate  $350  for  each  share  of  Preferred  Stock. 

INVENTORY 

Merchandise  is  always  inventoried  at  cost  or  market,  whichever 
is  lower  at  inventory  time. 

GROSS  SALES 

The  total  sales  of  the  company  for  1919  were  between  $7,500,000 
and  $8,000,000.  During  the  year  1919  we  unloaded  at  our  plat- 
forms 826  full  cars  of  merchandise.  Approximately  2,500  carloads 
came  to  us  in  less  than  carloads. 

TURNOVER 

The  company's  turnover  is  unusually  large,  being  Q\i  times 
the  amount  of  stock  carried. 

EARNINGS 

After  the  Preferred  Stock  dividends  are  paid,  no  more  than  7% 
can  be  paid  to  the  Common  Stock,  the  remainder  going  to  the 
Surplus  in  support  of  interests  of  the  Preferred  Stock  outstanding. 

DISCOUNTS 

The  company  discounts  all  bills;  delinquent  accounts  receivable 
are  charged  off  every  six  months.  The  company's  credit  losses  are 
practically  nothing,  being  less  than  one-half  of  1%  during  1919. 

INSURANCE 

Sufficient  fire,  tornado  and  sprinkler  insurance  are  carried  at 
all  times  to  fully  protect  the  stock  of  merchandise  and  warehouses. 


SALES  MANAGEMENT  227 

143.  DiRiGO   Power   Company — Spartan   Electric 

Company 

The  Dirigo  Power  Company  furnishes  a  large  por- 
tion of  the  power  sold  for  household  and  commercial 
use  in  one  of  the  large  cities  in  the  United  States.  This 
company  desires  to  develop  all  branches  of  its  central 
station  business.  Recently,  it  was  prepared  to  make 
a  reciprocal  arrangement  with  the  Spartan  Electric 
Company  to  the  following  effect.  The  Dirigo  Power 
Company  was  to  purchase  all  electrical  material  from 
the  Spartan  Electric  Company,  provided  the  latter 
would  refrain  from  selling  material  and  supplies  to 
isolated  plants  in  the  district  served  by  the  Dirigo 
Power  Company.  The  Spartan  Electric  Company  is 
one  of  the  large  manufacturers  of  electrical  equipment 
and  supplies  in  the  United  States. 

Should  the  Spartan  Electric  Company  have  entered 
into  this  agreement  with  the  Dirigo  Power  Company? 


144.  Volt   Electric    Company — Improved    Design 
OF  Product 

The  Volt  Electric  Company  is  one  of  the  large 
manufacturers  of  electrical  machinery  and  supplies. 
This  company  entered  the  steam  turbine  field  late  and 
undertook  to  develop  this  branch  of  its  business  as 
rapidly  as  possible.  It  sold  a  large  number  of  steam 
turbines  of  its  early  designs.  Later  this  company 
introduced  several  improvements  and  was  able  to 
manufacture  turbines  that  were  substantially  more 
economical  in  operation.  The  improved  turbines  were 
advantageous  to  customers  in  keeping  down  the  coal 
expense.  The  early  turbines,  however,  were  rugged 
and  durable  and  did  not  require  replacement,  except 
for  reasons  of  economy  in  operation. 


228  MARKETING  PROBLEMS 

What  policy  should  the  Volt  Electric  Company  have 
adopted  for  the  protection  of  customers  taking  the  risk 
of  purchase  of  the  early  designs  of  steam  turbines 
manufactured  by  this  company? 


145.  Lackawanna  Company — "Futures"  in  Canned 

Goods 

The  "futures"  system  has  been  used  for  many  years 
in  the  sale  of  canned  fruits  and  vegetables.  According 
to  this  system,  in  January  and  February  of  each  year 
canners  contract  with  wholesalers  and  occasionally 
with  large  retailers  for  the  bulk  of  the  goods  that  the 
canners  expect  to  pack  during  the  following  summer. 
The  wholesalers  at  the  same  time  contract  with  retail- 
ers for  canned  goods  to  be  deUvered  in  the  following 
October.  The  price  to  be  paid  by  the  retailer  is  speci- 
fied in  the  contract,  but  the  retailer  commonly  is  given 
a  guarantee  against  a  decline  in  price.  Under  these 
conditions,  if  the  spot  price  is  lower  in  October  than 
the  price  named  in  the  contract,  the  retailer  pays  for 
his  "futures"  at  the  spot  price.  Provision  is  also 
commonly  made  in  these  "futures"  contracts  for  the 
seller  to  deliver  pro  rata  on  all  "futures"  contracts,  if 
the  crop  is  small. 

Retailers  have  been  induced  to  buy  "futures"  in 
canned  goods  in  order  to  protect  themselves  on  special 
high-grade  brands.  The  trade  in  these  brands,  how- 
ever, constitutes  only  a  small  part  of  the  sale  of  canned 
goods  "futures"  to  retailers.  The  purchase  of  "futures" 
in  canned  goods  by  retailers  has  been  encouraged  on 
the  theory  that  the  retailer  thereby  saved  money  by 
securing  lower  prices.  This  theory  has  been  wide- 
spread among  retailers  and  wholesalers.    It  has  been 


SALES  MANAGEMENT  229 

disproved,  however,  by  a  statistical  study  of  prices  of 
canned  goods.  This  study'  of  the  seasonal  fluctua- 
tions in  the  price  of  standard  canned  fruits  and  vege- 
tables showed  that  the  advances  in  prices  in  a  few 
seasons  were  offset  by  the  dechnes  in  other  seasons. 
In  general,  there  appeared  to  be  little  fluctuation. 

The  Lackawanna  Company,  a  typical  wholesale 
grocery  business,  during  the  last  three  years  has 
bought  on  the  average  21,000  cases  of  "futures"  in 
canned  fruits  and  vegetables  each  year.  The  firm's 
spot  purchases  of  canned  fruits  and  vegetables  have 
averaged  about  2,300  cases  a  year.  "Futures"  sold  to 
retailers  during  these  three  years  have  averaged  14,500 
cases.  This  firm  is  operating  under  ordinary  conditions 
in  an  eastern  city  of  350,000  population.  The  sur- 
rounding territory  includes  prosperous  manufacturing 
and  agricultural  districts.  The  total  sales  of  all 
merchandise  of  this  firm  are  about  $575,000  a  year. 

Why  should  the  Lackawanna  Company  follow  this 
policy  in  buying  "futures"  in  canned  goods?  Is  the 
company  justified  in  selling  "futures"  to  its  retail 
customers? 


146.  Annisquam  Paper  Company — Foreign  Orders 

The  Annisquam  Paper  Company  has  a  small  plant 
for  manufacturing  paper.  Its  product  is  mainly  coated 
paper.  During  the  war  the  company  developed  an 
export  trade  with  South  America,  especially  with 
Venezuela.  The  paper  exported  to  Venezuela  was 
used  chiefly  in  the  manufacture  of  cigarettes. 

1  This  study  was  made  by  one  of  the  students  in  the  Harvard 
Graduate  School  of  Business  Administration,  and  the  results  of  his 
investigations  were  embodied  in  his  graduation  thesis. 


230  MARKETING  PROBLEMS 

During  the  first  half-year  in  1920,  the  domestic 
demand  for  the  product  of  the  Annisquam  Paper 
Company  was  heavy.  In  the  domestic  trade  the  com- 
pany's product  was  sold  primarily  to  the  large  job 
printers.  The  company's  capacity  was  inadequate  to 
take  care  both  of  the  foreign  and  the  domestic  business. 
At  that  time  the  foreign  business  was  more  profitable 
than  the  domestic  business,  but  the  company  foresaw 
that  eventually  the  profits  in  the  foreign  business  would 
probably  not  exceed  those  in  the  domestic  trade. 

What  policy  should  the  Annisquam  Paper  Company 
have  pursued  with  regard  to  the  orders  for  paper  from 
Venezuela  in  1920? 


147.  Blackstone  Company — N'ew  Branches 

The  Blackstone  Company  is  a  warehouse  distribu- 
tor of  iron  and  steel  products,  including  structural 
steel,  plates  and  bars,  tubes,  black  and  galvanized 
sheets,  intended  for  fabricating  and  manufacturing 
purposes.  The  total  sales  of  the  Blackstone  Company 
are  $10,000,000  a  year.  The  Company  operates  ware- 
houses in  St.  Louis,  Detroit,  Buffalo,  New  York,  and 
Chicago. 

The  chief  features  of  this  business  are  the  buying 
of  steel  products,  storing  them  in  long  lengths,  and  then 
distributing  the  products  in  short  lengths  to  meet  cus- 
tomers' requirements.  The  Blackstone  Company  pays 
the  same  prices  to  the  steel  manufacturing  companies 
for  its  purchases  as  are  paid  by  wholesale  consumers 
buying  directly  from  the  manufacturers.  In  selling 
the  Blackstone  Company  receives  a  margin  of  $15  per 
ton  over  the  price  paid  to  the  manufacturer.  This 
margin  constitutes  the  gross  profit  of  the  Company, 


SALES  MANAGEMENT  231 

and  from  it  all  expenses  for  selling,  handling,  interest, 
and  other  items  must  be  met  and  net  profit  derived. 

The  Blackstone  Company  has  built  up  its  business 
mainly  on  service,  in  furnishing  special  sizes  and  also 
in  being  able  to  make  immediate  delivery.  The  ship- 
ments are  made  by  this  Company  immediately  upon 
receipt  of  orders,  whereas  orders  placed  with  mills 
ordinarily  have  to  be  manufactured  according  to 
specifications  before  shipment. 

Prices  are  quoted  by  the  manufacturers  and  by  this 
Company  on  the  Pittsburgh  Basing  Point  System.' 
The  Blackstone  Company  adds  S15  per  ton  to  the  price 
determined  by  the  Pittsburgh  Basing  Point  quotation. 

A  problem  has  arisen  with  regard  to  additional 
warehouses.  Should  the  Blackstone  Company  estab- 
lish warehouses  in  such  cities  as  Boston,  Philadelphia, 
Cleveland,  Cincinnati,  and  so  on?  The  Company  now 
makes  shipments  to  these  districts  from  its  established 
warehouses. 

At  the  present  time  these  districts  also  are  served 
by  warehouses  of  competitors,  but  the  standard  of 
service  is  not  equal  to  that  of  the  Blackstone  Company. 
These  districts  apparently  afford  a  lucrative  market, 
but  for  the  Blackstone  Company  to  establish  ware- 
houses in  these  cities  would  cut  into  the  territories 
served  at  the  present  time  by  the  New  York,  Buffalo, 
Detroit,  and  Chicago  warehouses.  Intensified  sales 
effort  would  be  necessary  in  the  curtailed  territories 
to  offset  the  loss  in  their  sales  incidental  to  the 
establishment  of  additional  warehouses. 

At  the  present  time,  if  the  Blackstone  Company 
sells  in  Boston,  Philadelphia,  Cleveland,  or  Cincinnati, 
it  is  at  a  disadvantage  because  of  the  freight  differ- 
entials. The  Philadelphia  price,  for  example,  is  two 
cents  per  ton  less  than  the  New  York  Price,  because  of 
the  lower  freight  rate  to  Philadelphia,  on  the  Pitts- 
burgh Basing  Point  system.  The  price  at  Trenton, 
New  Jersey,  is  the  same  as  the  New  York  price.  Thus 
the  Blackstone  Company  has  an  advantage  in  terri- 
tory as  far  distant  as  Trenton  from  New  York  City, 

» See  Problem  No.  201,  pp.  297  to  332. 


232  MARKETING  PROBLEMS 

but  beyond  that  point  its  competitors  in  Philadelphia 
have  lower  freight  rates.  The  local  merchants,  in 
each  territory  where  there  is  no  Blackstone  warehouse, 
have  lower  freight  rates  from  Pittsburgh  than  the 
combined  freight  rate  incurred  by  the  Blackstone 
Company  on  shipments  from  Pittsburgh  to  its 
warehouses  and  thence  to  final  destination. 

The  Blackstone  Company  and  the  steel  mills  sell  to 
practically  the  same  classes  of  customers,  including 
railroads  and  other  transportation  companies,  auto- 
mobile manufacturers,  the  oil  industry,  and  building 
constructors.  About  one-third  of  their  tonnage  is 
structural  steel — beams,  angles,  and  channels.  A 
builder  frequently  buys  steel  for  the  basement  and 
first  floor  of  a  new  building  from  the  Blackstone  Com- 
pany for  immediate  delivery  because  of  the  large 
stocks  that  this  company  carries;  the  builder  orders 
steel  for  the  rest  of  the  building  from  the  steel  mills  at 
the  time  that  his  order  is  given  to  the  Blackstone  Com- 
pany for  its  portion  of  the  material.  In  this  way  the 
builder  is  enabled  to  have  his  stocks  of  steel  on  hand 
as  required.  The  Blackstone  Company  also  sells  large 
quantities  of  material  for  plant  maintenance.  Small 
machine  shops  and  similar  establishments  purchase 
from  the  Blackstone  Company. 

The  Blackstone  Company  does  no  fabricating;  that 
is,  it  does  not  manufacture  columns,  girders,  and  so 
forth,  out  of  structural  steel.  The  Company  sells  a 
general  line  of  iron  and  steel,  including  specialties  such 
as  various  grades  and  kinds  of  sheet  iron,  high  speed 
steel,  tool  steel  which  frequently  is  sold  in  very  small 
lots,  machinery  and  boiler  specialties  such  as  flanges, 
braces,  hangers,  and  tube  expanders.  This  Company 
is  not  in  competition  with  the  steel  mills.  It  takes  the 
small  business  that  is  not  profitable  to  the  mills. 
About  12%  of  the  entire  steel  output  of  the  country 
is  handled  through  warehouse  distributors,  of  which 
the  Blackstone  Company  is  one  of  the  important  ones. 

The  Company  carries  wider  plates  and  heavier 
machinery  for  cutting  these  plates  than  most  of  the 
other  wholesale  distributors  in  the  territories  where  the 


SALES  MANAGEMENT  233 

Blackstone  Company  is  considering  the  establishment 
of  warehouses.  Thus  the  Blackstone  Company  is  able 
to  render  services  that  its  competitors  have  not  been 
rendering  up  to  the  present  time.  There  is  a  possibihty 
of  developing  new  business  through  service  to  builders 
by  educating  them,  for  example,  to  use  sizes  of  steel 
plates  and  lengths  of  iron  and  steel  products  that  are 
more  economical  and  advantageous.  The  Company 
takes  all  its  cash  discounts,  the  terms  being  one-half 
of  one  per  cent  ten  days,  net  thirty  days. 

The  question  that  the  Company  faces  is  whether  it 
should  establish  new  warehouses  in  order  to  render 
a  country-wide  service.  How  should  the  Blackstone 
Company  proceed  in  determining  in  which,  if  any,  of 
these  districts  warehouses  should  be  established? 


148.  Royal  Portland  Cement  Company 

The  Royal  Portland  Cement  Company  several 
years  ago  faced  a  serious  problem  in  the  distribution 
of  its  product  due  to  the  increasing  competition  and 
the  fall  in  the  price  of  Portland  cement. 

The  production  of  Portland  cement  in  the  United 
States  increased  from  42,000  barrels  a  year  in  1880 
to  1,000,000  barrels  a  year  in  1896,  and  to  92,000,000 
barrels  a  year  in  1913.  In  1918  under  war  conditions, 
the  annual  production  was  71,000,000  barrels. 

The  price  of  Portland  cement  dropped  from  S2.50 
a  barrel  in  1880  to  $0.81  a  barrel  in  1909.  From  1909 
to  1913  the  price  ranged  from  $0.81  to  about  $1.00 
a  barrel. 

The  rapid  growth  of  the  industry  in  the  two  dec- 
ades prior  to  the  Great  War  and  the  accompanying  fall 
in  price  of  Portland  cement  were  caused  primarily  by 
technical  improvements  in  the  industry.  This  was  the 
period  of  the  invention  and  introduction  of  the  new 


234  MARKETING  PROBLEMS 

process  for  burning  pulverized  coal  in  the  rotary 
cement  kiln.  The  adoption  of  this  invention  resulted 
in  a  large  saving  in  labor  costs  and  also  made  possible 
the  utilization  of  vast  stores  of  raw  material  in  prac- 
tically all  parts  of  the  United  States.  Another  source 
of  Portland  cement  was  opened  up  during  this  period 
by  the  utilization  of  blast  furnace  slag  which  hitherto 
had  been  a  troublesome  waste  product.  The  Universal 
Portland  Cement  Company,  which  is  a  subsidiary  of 
the  United  States  Steel  Corporation,  had  an  annual 
capacity  in  1914  of  13,500,000  barrels  of  Portland 
cement,  all  produced  from  blast  furnace  slag. 

The  Royal  Portland  Cement  Company  operates 
plants  located  in  the  Lehigh  district,  equipped  with 
up-to-date  machinery.  Up  to  1910  this  company  had 
been  one  of  the  leaders  in  the  industry.  It  desired  to 
maintain  its  position. 

What  course  or  courses  of  action  were  open  to  the 
company? 


149.  Penobscot  Company — Market  Analysis 

The  Penobscot  Company  manufactures  water 
wheels  of  all  sizes  and  for  practically  all  the  purposes 
for  which  water  wheels  are  used.  The  company  is 
equipped  to  meet  the  requirements  of  users  of  water 
wheels  in  all  parts  of  the  world. 

What  are  the  main  points  for  consideration  in 
analyzing  the  market  for  this  company's  product? 


SALES  MANAGEMENT  235 

150.  Eskimo  Stove  Company — Market  Analysis 

How  should  the  Eskimo  Stove  Company  of  Buffalo, 
New  York,  undertake  to  analyze  its  market?  This 
company  manufactures  stoves  and  ranges  in  a  variety 
of  styles  and  sizes.  It  controls  no  patents  of  especial 
significance,  but  its  product  enjoys  a  well-established 
reputation.  The  company  sells  the  bulk  of  its  output 
in  a  territory  within  a  radius  of  300  miles  of  Buffalo. 


151.  Amazon  Rubber  Company — Market  Analysis 

The  Amazon  Rubber  Company  manufactures  rub- 
ber footwear  as  well  as  other  products.  This  company 
wishes  to  analyze  the  potential  demand  for  rubber 
footwear  in  the  United  States.  Its  product  is  sold 
entirely  under  its  own  brands  to  shoe  wholesalers  and 
also  direct  to  medium-size  and  large  retail  stores. 

What  suggestions  should  be  given  to  the  sales 
manager  of  the  Amazon  Rubber  Company  for  the 
analysis  of  the  Company's  market? 


152.  Pemaquid  Automobile  Company — Selling 
Points 

The  Pemaquid  Automobile  Company  was  estab- 
lished in  Detroit  over  ten  years  ago.    The  company 


236  MARKETING  PROBLEMS 

has  been  successful  financially.  It  has  an  especially 
good  reputation  for  the  manufacture  of  engines.  The 
company  has  recently  brought  out  a  new  six-cylinder 
automobile. 

The  selling  price  of  this  new  car  is  $1,500.  The  car 
is  made  in  two  models.  It  is  manufactured  in  a  new 
plant  with  modern,  up-to-date  equipment.  It  has 
numerous  features,  not  only  in  the  attractive  design 
of  the  body  but  in  the  motor  cooling  device  and  also 
in  other  mechanical  parts.  Special  attention  has  been 
given  to  means  for  securing  ease  and  comfort  in  riding 
and  also  for  obtaining  economy  in  the  use  of  gasoline 
and  tires. 

Before  this  car  was  offered  for  sale,  it  was  put 
through  severe  tests  on  the  roads  in  several  parts  of 
the  country.  As  a  result  of  these  tests,  a  few  minor 
improvements  in  the  car  were  made. 

What  groups  of  selling  points  can  the  Pemaquid 
Automobile  Company  use  in  marketing  this  car? 


153.  Goodyear  Tire  &  Rubber  Company — Selling 

Points 

The  following  news  item  was  published  March  4, 
1920: 

Los  Angeles,  Calif.,  March  4. — Three  building  units  are 
rising  rapidly  and  will  be  completed  by  June  1  for  the  Good- 
year Tire  &  Rubber  Company  and  the  Goodyear  Textile 
Mills  Company.  The  establishment  of  this  plant  entails  an 
expenditure  of  $11,000,000.  Altogether,  9,000  men  will  be 
employed  and  7,500  tires  will  be  the  daily  output.  A 
power  plant  consisting  of  three  600-horsepower  boilers  of  the 
oil-burning  type  is  involved.  The  plant  is  near  both  the 
Arizona  and  Imperial  Valley  cotton  fields,  which  furnish  the 
kind  of  staple  which  is  the  basis  of  the  Goodyear  tires. 


SALES  MANAGEMENT  237 

Along  with  the  construction  of  the  manufacturing  plant, 
the  Goodyear  Company  is  beginning  a  housing  development, 
called  the  Goodyear  Gardens.  This  community  centre  will 
contain  800  houses.  Every  workman  has  a  chance  to  own 
his  own  home,  on  a  small  initial  pajinent  and  monthly 
installments,  according  to  his  ability  to  pay. 

What  new  selling  points  for  the  products  of  this 
company  are  suggested  by  this  announcement? 


154.  Edgewear  Safety  Razor  Company — 
Selling  Point 

The  Edgewear  Safety  Razor  Company  desires  to 
obtain  a  firmer  hold  on  its  market,  and  for  this  purpose 
considers  it  necessary  to  seek  a  new  selling  point  for 
its  product.  This  company  has  been  in  business  for 
a  period  of  more  than  ten  years.  The  Edgewear  razor 
is  sold  for  $1.00.  National  distribution  has  been 
secured  through  retail  hardware  and  retail  drug  stores. 
The  sales  already  amount  to  a  large  volume,  but  it  is 
desired  to  increase  them  substantially.  Up  to  the 
present  time,  no  particular  selling  point  has  been 
featured  except  price,  ease  of  use,  and  general  claims 
of  superiority. 

How  can  the  Edgewear  Safety  Razor  Company 
proceed  to  find  a  new  selling  point? 


238  MARKETING  PROBLEMS 

155.  Banner  Manufacturing  Company — Grade  of 

Product 

The  Banner  Manufacturing  Company  has  been 
manufacturing  furniture  for  twenty  years.  It  is  incor- 
porated with  a  capital  stock  of  $500,000  authorized  and 
issued.  Its  two  plants,  located  in  the  Middle  West, 
employ  in  all  about  400  workers.  The  output  is  sold 
direct  to  furniture  retailers  by  the  company's  own 
salesmen. 

For  several  years  past  this  company  has  been  mak- 
ing the  cabinets  for  several  talking  machine  companies. 
Realizing  that  it  has  facilities  for  putting  out  machines 
more  cheaply  than  other  companies,  it  has  decided  to 
place  upon  the  market,  under  its  own  name,  a  line  of 
talking  machines  of  its  own  make.  It  has  secured  the 
agency  rights  in  America  for  foreign-made  motors, 
reproducers,  and  tone-arms. 

Should  the  company  put  out  a  machine  of  better 
grade  than  competing  machines  at  the  same  price,  or 
should  it  put  out  the  same  grade  of  machine  at  a 
lower  price? 


156.  Excelsior   Writing    Paper    Company — Sales 
Organization 

The  Excelsior  Writing  Paper  Company  discovered 
that  apparently  a  substantial  number  of  its  customers 
were  not  receiving  proper  attention,  and  a  change  in 
the  administrative  organization  has  been  proposed  for 
consideration. 

The  Excelsior  Writing  Paper  Company  markets  its 
products  in  practically  all  parts  of  the  United  States. 
It  sells  to  wholesalers  and  also  direct  to  numerous 
retailers  in  the  large  and  medium-size  cities  and  towns. 


SALES  MANAGEMENT  239 

About  40%  of  the  sales  are  made  to  customers  who 
buy  in  large  quantities.  The  remainder  of  the  cus- 
tomers purchase  small  lots.  The  customers  buying  in 
large  lots  are  regular  patrons  of  this  company,  but  it 
now  appears  that  among  the  large  number  of  mer- 
chants who  buy  small  quantities  there  is  frequent 
change.  Many  small  customers  who  have  bought  in 
the  past  are  no  longer  purchasing  from  this  company. 

This  company  has  sought  to  emphasize  a  policy  of 
fair  treatment  to  customers.  Nevertheless,  it  appears 
that  in  the  sales  department  and  also  in  the  credit  and 
shipping  departments  more  personal  attention  has  been 
given  to  the  large  customers  than  to  the  small  customers. 

Under  the  present  organization  the  sales,  credit, 
claims  and  grievances,  and  shipping  departments  are 
functionaUzed.  The  claims  and  grievances  for  all 
customers,  for  example,  are  handled  directly  and 
exclusively  in  a  single  department.  It  previously  had 
been  planned  to  carry  this  specialization  of  functions 
further  as  the  organization  developed. 

In  order  to  secure  better  service  for  the  small  cus- 
tomers, it  is  now  proposed  that  the  sales  office  should 
be  reorganized  with  territorial  rather  than  functional 
specialization.  According  to  this  new  plan,  the  hiring 
and  control  of  all  salesmen  for  all  territories  will  be 
centralized  under  one  head.  Advertising  will  also  be 
centraHzed,  and  there  will  be  a  single  credit  depart- 
ment. The  country  would  be  divided  into  territories, 
and  one  man  in  the  sales  department  would  be  placed 
in  charge  of  each  territory.  He  would  have  charge  of 
the  routine  sales  work,  claims  and  grievances,  and  all 
correspondence  with  customers  in  his  territory.  In 
dealing  with  matters  such  as  credit,  he  would,  of  course, 
be  guided  by  the  decision  of  the  credit  department. 

Is  this  proposed  plan  practical? 


240  MARKETING  PROBLEMS 

157.  Calhoun  Manufacturing  Company — Selection 
OF  Salesmen 

The  Calhoun  Manufacturing  Company  is  engaged 
in  the  manufacture  and  sale  of  ink,  typewriter  rib- 
bons, and  carbons.  Its  products  are  sold  to  a  few 
wholesalers,  to  large  retailers,  and  to  large  industrial 
and  commercial  consumers.  The  company  maintains 
a  travelling  salesforce  of  about  forty  men.  The  mem- 
bers of  the  salesforce  at  the  present  time  are  high- 
grade  salesmen.  Nevertheless,  the  company  wishes 
to  exercise  greater  care  in  the  future  in  the  selection  of 
recruits  for  the  salesforce,  in  order  to  improve  its 
quality. 

The  following  instructions  have  been  issued  regarding 
the  selection  of  salesmen : 

SELECTION    OF   SALESMEN 

Qualifications:  Calhoun  salesmen  should  be  selected  from 
prospects  who  possess,  or  can  be  trained  to  attain  the 
qualifications  described  below. 

1.  Health:  There  should  be  no  question  of  the  appli- 
cant's health,  which  means  not  only  condition  at  the  time, 
but  also  his  power  of  resistance.  As  this  is  to  be  determined 
by  a  physician's  examination,  no  further  description  is 
needed  here. 

2.  Appearance  and  Manner:  The  chief  points  to  be 
noted  under  this  heading  are 

(1)  personal  neatness  as  shown  by  conditions  of  nails 

and  teeth,  beard  and  hair; 

(2)  dress,  as  shown  by  condition  of  shoes,  linen, 

hat  and  suit; 

(3)  taste,  as  shown  by  style  and  colors  of  clothing; 

and 

(4)  bearing,  as  shown  by  the  degree  of  courtesy, 

pleasing  voice,  sense  of  humor,  etc. 

3.  Industry:  This  is  a  very  important  qualification  and 
means  that  the  man- should  possess  the  trait  of  working  hard 
under  all  conditions,  pleasant  or  discouraging.  It  has  been 
called  stick-to-itiveness,  persistency,  grit,  etc. 

4.  Education:  The  equivalent  of  a  high  school  education 
is  the  lowest  educational  standard  we  should  accept.  This 
education  may  have  been  obtained  actually  at  a  high  school, 
or  in  an  evening  school,  or  by  the  faculty  of  learning  in  other 
ways.  Furthermore,  if  over  four  years  removed  from  high 
school  graduation  age  (17  years)  we  should  check  up  his 


SALES  MANAGEMENT  241 

knowledge  of  general  business  principles  and  conditions  that 
he  should  have  learned  if  employed  anywhere  previously. 
This  will  indicate  his  ability  to  learn  wherever  he  is  placed, 
and  his  habits  of  attention  to  the  tasks  assigned  to  him. 

5.  Age:  We  should  select  men  whose  ability  to  learn 
new  ways  of  doing  and  to  put  them  into  practice  is  still 
pronounced.  Another  way  of  putting  it  is  to  say  we  want 
men  who  can  be  moulded  easily  to  fit  our  needs,  and  yet 
men  who  are  mature.  The  usual  age  that  carries  these 
qualities  is  from  20  to  25  years.  It  should  be  borne  in 
mind,  however,  that  these  qualities  frequently  are  to  be 
found  in  men  of  older  years. 

6.  Personality:  This  is  the  sum  total  of  the  effects  of  all 
qualifications.  It  is  not  safe  to  use  this  as  an  individual 
quality,  but  may  be  used  to  describe  the  man  after  the 
detailed  analysis  has  been  made. 

Interview:  The  following  suggestions  for  sizing  up  a  man 
are  helpful  in  determining  whether  the  candidate  has  the 
qualifications  for  a  position  as  a  Calhoun  Salesman: 

1.  Intermittent  Interview:  The  candidate  should  be 
observed  under  as  many  conditions  as  possible.  This  may 
be  done  in  several  ways, — in  his  place  of  employment,  by 
taking  him  to  lunch,  by  having  him  call  at  the  office,  etc. 
The  purpose  is  to  remove  any  artificial  restraint  and  thus 
judge  him  as  he  naturally  acts  and  talks,  or  in  other  words 
to  study  the  man  while  he  is  "off  his  guard."  Again  by 
observing  him  at  intervals,  there  is  a  correspondingly  greater 
chance  of  observing  the  man  under  varying  conditions  and 
in  various  moods. 

2.  Multiple  Interview:  It  has  also  been  helpful  to  have 
a  senior  salesman  interview  and  observe  the  prospective 
salesman.  In  fact  selections  made  on  the  basis  of  more  than 
one  man's  judgment  usually  mean  a  sounder  decision. 

3.  Record  of  Interviews:  After  each  interview  or  observa- 
tion of  the  candidate,  it  will  be  helpful  to  note  the  impression 
of  the  different  qualities  he  has.  The  application  blank  is 
to  be  used  to  jot  down  the  various  facts  learned  and  impres- 
sions gained  from  time  to  time.  The  impression  will  also 
vary  from  one  time  to  the  next  and  give  you  warning  to 
check  up  such  judgments. 

4.  Final  Interview:  The  blank,  with  all  its  details,  should 
be  filled  out  when  you  have  decided  that  the  prospective 
candidate  is  worthy  of  serious  consideration  for  a  position 
with  us.  At  that  time  you  should  ascertain  all  the  facts. 
All  decisions  or  qualifications  which  involve  judgment,  not 
facts,  should  be  made  before  the  final  interview.  At  this 
time  in  addition  to  checking  up  the  items  of  age,  resistance, 
etc.,  you  should  find  out  if  the  man  is  al)le  and  is  willing  to 
go  wherever  he  may  be  called  upon  by  us  to  go. 


242  MARKETING  PROBLEMS 

Source  of  Supply:  The  following  suggestions  are  made  to 
indicate  where  such  men  as  we  need  have  been  found  in 
the  past. 

1.  Calhoun  Branch  Houses. 

2.  The  Calhoun  Factory. 

3.  Customers  Stores.  This  is  a  very  good  source  in 
which  to  practice  the  intermittent  interview  method,  par- 
ticularly to  check  up  the  qualifications  of  appearance,  man- 
ner, industry,  age  and  education.  The  clerk  in  the  cus- 
tomer's store  need  never  know  that  you  are  studying  him 
as  a  possible  Calhoun  salesman  and  hence  will  be  "off  his 
guard"  and  natural.  Clerks  in  our  customers'  stores  get 
a  knowledge  of  our  lines  that  is  of  value  to  them,  if  they 
sell  for  us. 

4.  High  Schools.  Here  is  also  a  good  place  to  find  the 
right  kind  of  material.  It  is  always  possible  to  get  in  touch 
with  the  Principal  of  the  school,  and  go  over  with  him  the 
list  of  young  men  who  will  be  graduated.  He  or  his  assist- 
ants know  of  each  boy's  qualities  and  ambitions,  and  usually 
can  recommend  for  your  observations  one  or  two  possibilities. 

5.  Advertising.  Experience  has  proven  that  this  method 
of  getting  a  supply  of  candidates  is  not  efficient.  It  should 
be  used  only  as  a  last  resort. 

6.  Small  cities  and  large  towns.  District  Managers  and 
salesmen  as  they  travel  can  keep  in  mind  the  need  for 
Calhoun  Salesmen  and  be  on  the  lookout  for  good  prospects. 
The  smaller  cities  and  larger  towns  are  as  likely  to  have 
them  as  the  large  cities. 

7.  Records.  A  list  of  possible  candidates  should  be  kept 
at  all  times.  The  method  of  intermittent  interviews  makes 
it  possible  to  take  sufficient  time  to  size  up  the  man,  so  that 
whenever  there  comes  a  call  for  more  men,  all  the  work  pre- 
liminary to  the  final  interview  will  have  been  done,  with  a 
number  of  good  prospects  in  sight  for  the  position. 

A  vacancy  on  the  Calhoun  salesforce  has  occurred, 
and  it  is  to  be  filled  by  one  of  the  candidates  whose 
application  records,  with  omission  of  minor  details,  are 
given  on  the  following  pages.  Which  candidate  should 
be  selected?  The  successful  candidate  is  to  be  assigned 
to  the  Ohio  district;  later  it  may  be  necessary  to 
transfer  him  elsewhere. 


APPLICATION  RECORD 

CALHOIN  MANI'FACTLRING  COMPANY 


of  Ap^icalion  (Check) 


Full  Na 

Source 

C.  M.  C.  Branch  House 
C.  M.  C.  Factory 

Interviewed  by 

Local  Address 

Home  Address 


JLJJL 


Recommended 
by  Customer 


Advertisement*^ 
Dates       r  >C 


I'ersoDiil 
Other 


>-  -^ 


.  Telephone   ^  \^ 


^  -^ 


Age  j2jL_  Where  Bor 
Single . 


r^tiurUrJi 


Birthplace  cf  Father     ^  **■ 


Married. 


No.  Childre, 


Health  (Apparent) 


Chiliirep 


Birthplace  of  Moth.r  U-  « 

Total  No.  Dependents  „  '"  -^   , 

(Rating  by  Physician)  >^fTti- 


^ 


EDUCATION 


Grade  School      High  School     Trade  School      Business  School      College 
Special  Courses  (Specify')         -^  'k" 


ACTIVITIES^  n.         J 

Business  Organizations  (Specify  if  Menilx-r)   U^fHA/fL     gJ.   //1/AAc~ 
Social  Organizations  <MMlAf€u-   CuJr  ^ 

1^  


I  Organ 
Athletics      'Tj/HAU/I 
Hubbies         ■■/"   ^ 


PREVIOUS  EMPLOYMENT 


Company  Period 


Job 


Salary    Reasons  for 
Monthly       Leaving 


Refer- 


(Knowledge  of  Special  Lines. ^clc) 

Territory  Desired       Lwfy 

Will  be  Willing  to  Take  Any  ACisiran.nl. ^  Vi-<   «-^      No  . 

QualiGcalions  (Applicant  to  l>c  Rated  After  Each  Interview). 


Personal  Appearance 

Drtss 

Vuicc  and  Language 

Frankne>s 

Energy 

Persist  core 

Persuasive  Force 

BreaJlh  of  View 


G.^..l 

Fair 

r^nr 

t^ 

^ 

^ 

^ 

*^ 

^ 

^ 

y 

^ 

Adaplabitily 
Tact  and  Courtesy 
Alert  ncu 
AojliitioQ 
Analytical  Power 
Attention  to  Detail 
Inlcrt'sl  and  Enlbusiosoi 
Business  Sense 


fn-Ki 

Fair 

Poor 

• 

•' 

y 

• 

^ 

^ 

y 

/ 

243 


APPLICATION  RECORD 

CALHOUN  MANUFACTURING  COMPANY 

Full  Nam-     lATMlAAU^    •C/LiH/lf^l^ 

Source  of  Application  (Check) 

C.  M.  C.  Branch  House      R'.'commendod      Advertisement      Personal 
C.  M.  C.  Factory     ^^        by  Customer                                     Other 
Interviewed  bv        K.    H  ■    i- Dates       >^  'X 


Local  Address  _ 
Home  Address . 


-^   -r 


^    -r 


_  Telephone . 


-K 


Age  i'  y  Whpj-e  Born  Q-^/'tZrlL, 

Single    <-^ 

Married  No.  Children  ■ ■ 

Health  (Apparent)  .A^^ml 


Birthplace  of  Father  ^^uXd/k/tL, 
Birthplace  of  Mother         " 

Total  No.  Dependents  ^''^Zx '. 

.  (Rating  by  Physician)  y^ll/-rh^ 


,^. 


EDUCATION 


Grade  School     High  School     Trade  School      Business  School      College 
Special  Courses  (Specify)       -^      -t" 


ACTIVITIES 

Business  Organizations  (Specify  if  Member)       -%    'T 
Social  Organizations . 
Athletics         -JOirUji- 
Hobbies  ''Cl^UjL-' 


^^-  -r 


Company 

PREVIOUS  EMPLOYMENT 

Period                Job            Salary    Reasons  for 
Monthly      Leaving 

Refer- 
ences 

tuk.Cc. 

-TiUdM 

fjcfit. 

"^liO 

JcAMU 
/mAjAjJUUL 

Good»^ 

Fair 

Poor 

J 

(T 

1 

Good 

Fair 

Poor 

Good 
Fair 
Poor 

SPECIAL  ABILITY 


(Knowledge  of  Special  Lines,  ptf>  slUfU/^^  6cU  CUA.  Zuu4  ^5t% 
Territory  Desired       'IClM' 


Will  be  Willing  to  Take  Any  A^gnment?              Yes_>l_No 
Qualifications  (Applicant  to  be  Rated  After  Each  Interview) 


Good 

Fair 

Poor 

ferson&l  Appearance 

/ 

Dres3 

/ 

^ 

Frankness 

^ 

Energy 

</ 

Persistence 

*^ 

Persuasiire  Force 

^ 

Breadth  o(  View 

#/ 

Good 

Fair 

Poor 

Adaptability 

^ 

Tact  and  Courtesy 

y 

^, 

/ 

Analytical  Power 

y 

Attention  to  Detail 

/ 

y 

Business  Sense 

♦^ 

214 


APPLICATION  RECORD 

CALHOIN  MANUFACTURING  COMPANY 


rAaJjA    HloJ- 


Full  Namf. 

Source  of  Application  (('heck) 

C.  M.  C.  Branch  House      Rfooruraended      Adverlisemeut       Personal  j/^ 
C.  M.  C.  Factory  by  Customer  Other 

Interviewed  by         H  ■  C .  /■ Dates         -r"  '^ 

Local  Address^ Telephone _d!l-dtl 

Home  Address       -t'  -f" 


Age jt_3L_ Where  BorirJi 
Single    t^ 


Birthplnrf  nf  Father       U      \/ 
.Birthplace  of  Mother 


»,      ■    ,  V-      /111        Total  No.  Dependents  „  '"■  ^ 

Married      No.  Children    *^  Partial — 

Health  (Apparent )  Jl24-rvL (Rating  by  Physician)   fOUA^ 


^      EDUCATION 

High  School     Trade  School      Business  School      College 
Special  Courses  (Specify)^ 


Grade  School 


ACTIVITIES 

Business  Organizations  (Specify  if  MpihI^mtJ     j-r  '-T 
Social  Organizations . 
Athletics       "fXcUuyj 
Hobbies         ^  ^ 


(Specify  if  Memt^ypQ      -r 


Company 


PREVIOUS  EMPLOYMENT 

Period  Job 


Salary    Reasons  for   Refer- 
Monthly      Leaving       ences 


i/  HUa/} 

(LA 

^llS 

Good^ 

Fair 

Poor 

r 

'^        1 

Good 
Fair 
Poor 

Good 
Fair 
Poor 

SPECIAL  ABILITY 

(Knowledge  of  Special  Lines,  eir  )  "lJAHU-. 

Territory  Desired  P I/H/lLaAjilT^  ^j^^      - 

Will  be  Willing  to  Take  Any  Assij^a-eut?  Yes_f:_  No      ■ 

Qualifications  (Applicant  to  be  Rated  After  Kach  Interview) 


Personal  Appt-urance 

Uress 

Voict  and  Language 

Frouknvs:} 

Korrgy 

HtTsislenoc 

Prrsuaajvc  For<* 

brcaJLli  u(  Vkw 


Good 

Fair 

Poor 

^, 

y 

^ 

^/ 

f 

^ 

»-- 

• 

AJaptubilily 

Tact  and  G>urlC5^ 

Alertness 

AoibitioD 

Ajialylicai  Power 

Altcotiuo  to  UclaJ 

Intrrrjit  and  Eutbuajul& 


Good 

Fair 

Pool 

*^ 

y 

^ 

y 

• 

•' 

y 

y 

245 


APPLICATION  RECORD 

CALHOUN  MANUFACTURING  COMPANY 


QyU, 


Full  Nam;. 

Source  of  Application  (Check). 

C.  M.  C.  Branch  House      Recommended      Advertisement      Personal 
C.  M.  C.  Factory  -  by  Customer/'  Other  - 

t^.   0    T- Dates     4"    -t" ^ 


^  -r 


-r  -r 


Interviewed  by  . 
Local  Address  _ 
Home  Address 

AgP  J,  I  Whore  Born  tUiT ^jxIL 

Single      *^ ^       . 

Married    ^—    No.  C"  "  " 
Health  (Apparent) 


.  Telephone    ^   ■^T 


Birthplace  of  Father     ^  •  -^  . 

Birthplace  of  Mother  _ZA<tA^J^=. 

Total  No.  Dependents  ^^^°}-\ " 

"^  u    Partial  — 

(Rating  by  Physician)  Aumt. 


EDUCATION 

High  School     Trade^S^hooI      Business  School      College 
Special  Courses  (Specify)  . 


Grade  School 


1  rane  j^onool      Bui 

ACTIVITIES 


Business  Organizations  (Specify  if  Member)      ^T"  n 

Social  Organizations         ■^  -^ 

Athletics        -t—  ^V 

Hobbies       '^      -^^ 


PREVIOUS  EMPLOYMENT 

Company  Period  Job  Salary    Reasons  for   Refer- 

Monthly      Leaving      ences 


dudlAMLtf*. 

ti  ^ijutu 

llHi 

ii/ilu. 

Good  ^ 

Fair 

Poor 

1 

Good 
Fair 
Poor 

Good 
Fair 
Poor 

SPECIAL  ABI 

(Knowledge  of  Special  Lipes^ej^,) 

Territory  Desired 

Will  be  Willing  to  Take  Any  Assignment?  Yes    i^    No. 

Qualifications  (Applicant  to  be  Rated  After  Each  Interview) 


SPECIAL  ABILITY  .  ^^ 

al  Lines.,el(>)  h^A4<d.  STU.  Q^trtii lUd  Ml*4 


Personal  Appearance 

Dress 

Voice  and  Language 

Frankness 

Energ/ 

Persistence 

Persuasive  Force 

Breadth  of  View 


Good 

Fair 

Poor 

/ 

/ 

t^ 

y 

/ 

^ 

y 

t^ 

Adaptability 
Tact  and  Courtesy 
Alertness 
Ambition 
Analytical  Power 
AUenlion  to  Detail 
Interest  and  Enthusiasm 
Business  Sense 


Good 

Fair 

Poor 

/' 

'  ^ 

/ 

/ 

/ 

^ 

^ 

y 

^ 

246 


APPLICATION  RECORD 

CALHOUN"  MAXUFACTLRING  COMPANY 


)[.li(atiiM  ((■Kc<k)_ 


/AMX^ 


Full  Name 
Source  of  A[)[ 

C.  M.  C.  Hraiifh  House      Rxommenilcd      Advertisement       Personal*^ 
C.  M.  C.  Factory  by  Customer  Other 

Interviewed  by  It    K.    r Dates       -f"  ^ 

Local  Address^ Telephone    A"  -^ 

Home  Address      •t~  'f ^ 

Birthplace  of  Father       U.^- 

Age  ^  If    Where  Born  Mut.r<^        Birthplace  of  Mother  " 

Single T„.„i  M„    r> j„_..  Wholly  3 


Married     >^      Xo.  Children      «^ 
Health  f Apparent^       ~7i^^ 


Total  No.  Dependents 


Partial  — 


(Rating  by  Physician)        /Zt/ML- 


EDUCATION 

High  School      Trade  School      Business  School      College 
Special  Courses  (Specify). 


Grade  School 


-Jf   ^ 


ACTIVITIES 

Business  Organizations  (Specify  if  Member)     .    "^  "; 
Social  Organizations  i^AXcdjit.     Ji^rtLtZ*/ 

Athletics         -¥"  -^ d. 

Hobbies         -^      1    


PREVIOUS  EMPLOYMENT 

Company  Period  Job  Salary    Reasons  for    Rcfer- 

Monthly      Leaving       cnces 


^  llxytAA 


"ViAvUtM 


liho 


Good 
Fair  ^ 

Poor 


■3  iJUUi^ 


liO 


G<x)d 
Fair  ^ 
Poor 


Good 
F'air 
Poor 


SPECIAL  ABILITY'     ^  ,.  .        ^^.^ 

iai  I  inn.    Ptr  ^/tOJ /t/U fiAAuJo  JlfM  //Y /^^yt^^ 


(Knowledge  of  Special 
Territory  Desired 

Will  be  Willing  to  Take  Any  Assignment?  V'-s  No 

Qualifications  (Applicant  to  l)e  Rated  After  Each  Interview), 


Personal  Appearance 

Dress 

Voice  and  Language 

Frankness 

Energy 

Persistence 

Persuiisive  Force 

Breadth  of  View 


G.-.-J 

Ka.r 

Poi.r 

/ 

y 

^ 

y 

y 

y 

</ 

IT 

Adaptability 
Tacl  and  Courtesy 
Alertness 
Ambition 
Analytical  Power 
Attention  to  Detail 
Intercut  and  Enlbuuiism 
Businna  Sense 


G04>J 

K..ir 

I'.wt 

,/ 

,/■ 

/ 

♦^ 

y 

y 

y 

^ 

1X1 


APPLICATIOxN  RECORD 

CALHOUN  MANUFACTURING  COMPANY 

Full  Name       tUMyO^  h/vUcl 

Source  of  Application  (Check) 

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C.  M.  C.  Factory  -.  by  Customer  Other 

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ACTIVITIES  .       /   //  / 

Business  Organizations  (Specify  if  \\p'n^Y^T)UcUtUU/}  lUuxyl   CCuV' 


Social  Organizations 

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PREVIOUS  EMPLOYMENT 


Company 

Period 

Job 

Salary 
Monthly 

Reasons  for 
Leaving 

Refer- 
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Qualifications  (Applicant  to  be  Rated  After  Each  Interview) 


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Voice  and  Language 

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APPLICATION  RECORD 

CALHOUN  MANUFACTURING  COMPANY 


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Other 


Pull  Name 
Source  of  AppI 

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Trade  School      Business  School 


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Business  Organizations  (Specif\^  if  Alember)  _„Jljt^ 

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PREVIOUS  EMPLOYMENT 


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Fair 

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250  MARKETING  PROBLEMS 

158.  Calhoun  Manufacturing  Company — Form  of 
Application  Record 

Should  any  modifications  be  made  in  the  instruc- 
tions and  forms  used  by  the  Calhoun  Manufacturing 
Company  as  stated  in  the  preceding  problem?  It  has 
been  suggested,  for  example,  that  thrift,  reliability, 
and  perhaps  other  qualities  should  be  added  to  the  list 
of  qualifications  on  which  applicants  are  to  be  rated. 


159.  Iroquois  Typewriter  Company — Sales  Manual 

The  general  sales  manager  of  the  Iroquois  Type- 
writer Company  has  a  problem  of  deciding  what  is  to 
be  included  in  a  new  sales  manual.  The  company 
operates  forty-two  branches.  The  sales  manager  of 
each  branch  selects  and  directs  the  work  of  the  sales- 
force  in  his  territory.  All  communications  between 
the  central  office  of  the  company  and  its  salesmen  are 
made  through  the  branch  managers. 

In  order  to  secure  more  effective  training  of  the 
salesmen  and  greater  uniformity  in  their  methods,  a 
system  of  instruction  for  the  entire  salesforce  of  the 
company  is  planned.  One  ot  the  essential  features  of 
this  plan  is  a  sales  manual,  a  copy  of  which  is  to  be 
furnished  to  each  salesman. 

What  sort  of  information  and  instruction  should  be 
included  in  this  sales  manual  concerning: 

(a)  methods  of  (e)  the  factory? 

salesmanship?  (f)  the  policies  of  the 

(b)  locating  prospects?  company? 

(c)  sales  arguments?  (g)  any  otber  subjects? 

(d)  the  product? 


SALES  MANAGEMENT  251 

160.  Hawthorn  Grocery  Company — Training 

Salesmen 

The  Hawthorn  Grocery  Companj'  operates  a  chain 
of  150  retail  grocery  stores  and  plans  to  open  many 
new  branches.  At  the  present  time  about  375  men 
are  employed  in  these  stores. 

A  central  employment  department  has  been  estab- 
lished to  supervise  the  hiring,  training,  and  discharg- 
ing of  employees.  A  training  school  for  employees  is 
to  be  opened.  Each  new  employee  will  take  a  course 
in  this  school,  covering  two  to  three  weeks. 

What  sort  of  instruction  is  it  desirable  to  give  new 
employees  during  this  period? 


161 .  Neponset  Soap  Company — Quotas  for  Salesmen 

The  Neponset  Soap  Company,  with  a  plant  located 
near  Boston,  manufactures  soap  for  general  household 
use.  This  product  is  widely  advertised  and  sold  direct 
to  retailers. 

How  should  the  sales  manager  of  the  Neponset 
Soap  Company  undertake  to  work  out  quotas  for  his 
salesmen?* 


162.  Adirondack  Automobile  Company — Quotas 
for  Salesmen 

On  what  basis  should  the  Adirondack  Automobile 
Company  work  out  quotas  for  its  salesmen?     The 

»  Melvin  T.  Copeland,  Business  Slalutics.  pp.   182-183;  F.   H. 
Dodge,  "Working  Out  Quotas,"  Pnnters'  Jiik,  July  20,  1916.  pp.  US-103. 


252  MARKETING  PROBLEMS 

company  has  been  engaged  in  the  manufacture  of 
automobiles  for  a  period  of  twelve  years.  Its  products 
include  several  models  of  cars  that  sell  at  prices  ranging 
from  $1,200  to  $1,800.  The  company  operates  twenty- 
five  branches  located  in  the  larger  cities  of  the  United 
States.  The  territory  served  by  each  branch  is  divided 
into  sections  and  one  wholesale  salesman  is  placed  in 
charge  of  each  section.  There  are  about  150  wholesale 
salesmen.  A  quota  system  for  these  salesmen  is 
desired. 


163.  Kennebec  Company — Salesforce  Expense 

Melvin  T.  Copeland,  Director, 
Bureau  of  Research, 
Harvard  University, 
Cambridge,  Mass. 
Dear  Sir : 

We  have  received  your  letter  of  July  1st  and  we  have 
filled  out  the  blank  which  you  sent  us  and  wish  to  advise 
you  that  we  are  very  much  interested  in  regard  to  the 
methods  used  by  the  wholesale  grocers  for  paying  their 
salesmen. 

Our  officers,  the  President  and  Treasurer,  call  on  the 
city  trade  and  part  of  their  salary  each  year  is  charged  to 
selling  expense.  We  have  two  salesmen  whose  territory  is 
within  a  radius  of  25  miles.  We  pay  these  salesmen  35%  of 
the  gross  profits.  We  have  two  salesmen  whose  territory  is 
within  a  radius  of  50  to  100  miles  whom  we  pay  40%  of 
the  gross  profits.  We  have  two  other  salesmen  who  cover 
points  which  do  not  really  belong  to  us  on  account  of  the 
distance  and  slow  delivery  on  the  goods  and  we  are  paying 
these  salesmen  50%  of  the  gross  profits.  We  give  our  sales- 
men a  drawing  account  each  week  of  from  $40  to  $65  and 
then  give  them  the  percentage  of  the  gross  profits  as  stated 
above.  Our  method  of  figuring  the  gross  profit  is  the  actual 
cost  of  the  goods  delivered  in  our  store  with  an  additional 
charge  of  4  c  per  hundred  for  cartage.     We  include  no  over- 


SALES  MANAGEMENT  253 

head  expenses  in  our  cost  of  goods.  We  carry  out  the  cost 
of  each  order  shipped  on  the  above  basis  and  figure  the  gross 
profits  from  this  basis.     Our  net  sales  in  1918  were  S5 14,000. 

We  have  noticed  that  our  selling  expense  was  higher  than 
the  average  wholesale  grocers'  from  the  summaries  which 
you  have  sent  us,  as  we  note  that  your  average  for  the  year 
1918  was  about  2J^%.  We  find  that  our  selling  expense  for 
the  years  1917  and  1918  was  3  1-5%.  We  are  open  to  any 
suggestions  in  regard  to  the  plan  of  paying  salesmen  and  in 
fact  would  like  to  know  what  the  methods  of  other  firms  are 
as  our  plan  we  worked  out  ourselves  and  have  not  much  of 
an  idea  what  other  firms  are  doing  in  regard  to  paying  their 
salesmen. 

We  are  not  satisfied  with  our  present  method,  and  we 
should  like  to  have  suggestions  as  to  how  we  can  locate  the 
cause  for  our  high  salesforce  expense. 

Awaiting  your  reply,  we  are. 

Yours  very  truly, 

The  Kennebec  Companj'. 


164.  Ogunquit  Wholesale  Grocery  Company — 
Method  of  Paying  Salesmen 

The  Ogunquit  Wholesale  Grocery  Company  em- 
ploys twenty-two  travelling  salesmen.  They  are  paid 
a  commission  of  25  to  40%  on  the  profits.  The  regular 
commission  is  paid  to  each  salesman  on  mail  orders 
and  telephone  orders  received  from  his  territory.  Each 
salesman  is  also  allowed  his  regular  commission  on 
drop-shipment  orders  secured  by  specialty  salesmen  of 
manufacturers  in  his  territory  for  the  account  of  the 
Ogunquit  Wholesale  Grocery  Company. 

Is  the  Ogunquit  Wholesale  Grocery  Company  justi- 
fied in  paying  the  regular  commission  to  its  salesmen 


254  MARKETING  PROBLEMS 

on  mail  orders,'  telephone  orders,  and  drop-shipmeni 
orders? 


165.  Seminole  Company — Method  of  Paying 

Salesmen 

The  Seminole  Company,  manufacturing  toilet 
articles,  employs  sixty-five  travelling  salesmen.  Its 
salesforce  gradually  is  being  increased  in  numbers. 
The  company  sells  to  retail  drug  stores  over  a  wide 
territory.  It  devotes  attention  to  "dealer  helps,"  par- 
ticularly to  ''window  displays."  The  salesmen  are 
expected  to  assist  merchants  in  using  these  "helps." 
At  the  present  time  each  salesman  is  paid  a  salary  and 
is  reimbursed  for  his  actual  expenses. 

What  would  this  company  gain  by  substituting  a 
commission  on  sales  or  on  profits  for  the  method  of 
payment  by  salary?  Does  the  salary  method  have 
any  special  advantage  in  this  case? 

What  is  to  be  said  for  and  against  the  plan  of 
reimbursing  a  salesman  for  his  actual  expenses  as 
compared  to  the  plan  used  by  some  of  this  company's 
competitors  according  to  which  the  reimbursement  for 
expenses  is  covered  by  the  commission  or  by  a  lump 
sum  payment? 

Would  it  be  practical  for  this  company  to  pay  a 
small  bonus  to  a  salesman  for  each  new  account  secured? 


»A.  H.   Deute,  "Shall  Salesmen  Get  Credit  for   Mail  Orders?" 
Printers'  Ink,  June  26,  1919,  pp.  17-19. 


SALES  MANAGEMENT  255 

166.  Norfolk  Hosiery  Company — Guarantee 

The  Norfolk  Hosiery  Company  is  to  add  silk  hosiery 
to  the  other  classes  of  goods  that  it  now  manufactures. 
It  is  to  produce  both  men's  and  women's  silk  hosiery. 
The  quaUty  is  to  be  as  good  as  that  of  any  competitor. 
The  hosiery  is  to  be  widely  advertised  under  the 
manufacturer's  trade-mark. 

Should  a  guarantee  of  the  product  be  given  to  cus- 
tomers? If  so,  in  what  form?  If  the  product  is  guar- 
anteed, should  replacements  be  made  by  dealers  or 
directly  by  the  Norfolk  Hosiery  Company? 

One  manufacturer  of  a  similar  product  states  merely 
that  the  produce  is  "guaranteed"  without  further  quali- 
fication or  explanation.  Another  hosiery  company  has 
the  following  form  of  guarantee  on  the  ticket  attached 
to  each  pair  of  hose:  "If  this  pair  does  not  wear  satis- 
factorily, please  return  with  this  ticket  to  our  factory, 
and  we  will  send  a  new  pair  in  exchange." 

A  manufacturer  of  silk  gloves  has  used  the  follow- 
ing form  of  guarantee,  stated  on  the  ticket  attached  to 
each  pair  of  gloves:  "Warranted  not  to  cut  through  or 
wear  out  at  the  finger  ends  with  reasonable  wear." 
On  the  inside  cover  of  the  carton  in  which  the  goods 
are  shipped  to  retailers,  it  is  explained  that  the  guar- 
antee is  intended  to  cover  tips  of  gloves  only  while  the 
rest  of  the  glove  is  in  good  condition.  It  is  not  intended 
to  cover  worn-out  gloves,  washed  gloves,  gloves  cut  by 
rings,  strained  gloves,  and  so  on.  The  exchanges  are 
made  by  the  dealer,  and  the  customer  must  surrender 
the  guarantee  tickets  of  both  the  pair  returned  and  the 
new  pair  received  in  exchange. 

Another  glove  manufacturer  states  his  guarantee  as 
follows:  "Any  gloves  bearing  our  name  are  warranted 
not  to  tear  in  trying  on.  Gloves  that  show  defects  in 
material  or  workmanship  when  first  tried  on  will  be 
credited  or  exchanged.  We  cannot  accept  for  exchange 
the  return  of  worn  or  soiled  gloves,  but  will  be  pleased 
to  repair  same  free  of  charge." 


256  MARKETING  PROBLEMS 

A  tooth  brush  manufacturer  uses  the  following 
guarantee:  "This  brush  is  made  of  the  best  material. 
If  defective,  we  will  replace  it." 


167.  Allegheny  Wholesale  Grocery  Company — 
Return  Goods 

The  Allegheny  Wholesale  Grocery  Company  has  an 
annual  volume  of  sales  of  $1,845,000.  The  merchan- 
dise returned  by  customers  averages  about  $34,000 
a  year. 

What  policy  should  the  company  adopt  for  dealing 
with  returns? 

The  conditions  in  the  wholesale  grocery  trade  gen- 
erally have  been  summarized  as  follows  by  one 
wholesale  grocer:^ 

There  are  two  classes  of  goods  returned  and  many  kinds 
of  allowances  demanded.  First,  referring  to  the  goods 
returned,  there  is  the  merchantable  class.  The  question 
instantly  presents  itself,  "Why  are  merchantable  goods 
returned?"  There  are  a  number  of  answers  to  this  question. 
The  quality  may  not  be  right  or  the  shipment  may  be  unrea- 
sonably delayed ;  the  customer  may  be  a  careless  buyer,  and 
order  more  than  his  trade  requires.  In  this  instance,  the 
salesmen  are  as  a  rule  responsible,  at  least  in  a  large  measure. 
There  may  have  been  a  substitution  by  the  jobber;  sending 
something  "just  as  good"  as  the  brand  ordered;  the  salesman 
may  have  been  overzealous  and  might  have  misrepresented 
the  goods. 

It  must  be  admitted  that  a  large  quantity  of  merchant- 
able goods  are  returned  with  freight  and  other  charges  fol- 

^  O.  B.  McGlasson:  "Returned  Goods  and  Allowances,"  National 
Wfiolesale  Grocers'  Bulklin,  March  5,  1917.  Another  statement  regard- 
ing the  returned  goods  problem  is  given  in  the  National  Wholesale 
Grocers'  Bulletin,  November  4,  1916. 


SALES  MANAGEMENT  257 

lowing  to  be  paid  by  the  jobber,  showing  a  direct  loss,  aside 
from  the  loss  of  profit  and  deterioration. 

The  second  class  of  goods  are  those  which  in  some 
instances  were  sold  and  shipped  years,  in  others,  months 
ago.  Without  any  notice  or  complaint  from  the  customer 
the  jobber  is  shipped  a  consignment  of  returned  goods.  The 
goods  are  old,  spoiled,  stale,  shopworn  and  often  worthless. 
One  lot  returned  is  worth  50%  of  the  original  cost;  another 
20%,  and  another  absolutely  of  no  value,  not  worth  freight 
charges. 

The  day  the  goods  are  returned,  or  more  often  some  days 
later,  the  customer  writes  to  the  jobber  requesting  that  credit 
be  placed  to  his  account  for  the  goods  returned,  with  per- 
haps no  further  explanation,  or  the  customer  frequently 
ships  the  returned  goods  without  any  letter  or  comment 
whatever.  In  this  case,  ho,  as  a  rule,  expects  to  make  a 
payment  of  his  account,  and  returned  goods  are  charged  by 
him  back  to  the  jobber  at  the  original  invoice  value,  with 
check  to  balance,  or  to  balance  his  account  to  a  certain  date. 

The  customer  in  these  cases  assumes  the  authority  to 
charge  back  the  full  invoice  value  for  worthless  goods  or  for 
goods  worth  only  a  small  percentage  of  the  original  value, 
and  invariably  insists  the  goods  returned  are  "OK"  or  in 
the  same  condition  as  when  shipped  to  him,  and  after  writing 
the  customer  repeatedly  with  a  view  to  adjusting  such  a 
claim  with  a  reasonable  allowance,  what  is  fair  and  right, 
his  reply  brings  an  undercurrent  of  feeling  suggesting  that  his 
business  will  he  transferred  to  another  house  unless  he 
received  full  credit  for  goods  returned,  and  frequently  his 
letters  are  plain  and  make  this  statement  in  so  many  words. 

Salesmen  in  such  cases  usually  take  the  part  of  the  cus- 
tomer. Therefore,  under  existing  conditions  the  jobber  is 
helpless  and  a  large  per  cent  of  unjust  claims  made  by 
customers  for  worthless  goods  returned  are  allowed  by 
jobbers,  as  a  matter  of  policy,  and  passed  to  the  credit  of 
the  customer. 


258  MARKETING  PROBLEMS 

168.  Katahdin  Cotton  Mills — Cancellations  and 
Returns 

The  following  sales  contract  is  used  by  the  Katahdin 
Cotton  Mills.  The  company  operates  a  mill  of  1 15,000 
spindles  for  the  manufacture  of  fine  grey  goods.  The 
output  is  sold  chiefly  to  garment  manufacturers, 
wholesalers,  and  converters. 

CONTRACT 

Sold  To 

Quantity 

yards  (variation  not  to  exceed  2%  allowed) 

pieces  of yards  each 

bales  of yards  each 

(Allowable  variation  in  length  of  pieces  if  special.) 

In  addition,  buyer   to   take.  ...  %  Seconds  — 

and  seller  to  deliver  if  made:-. ...  %  Tailings    at    stated 

contract  price  if  con- 
tract is  not  renewed. 

Quality 

Time  of  Delivery 

from  date  hereof 

during   each   week,   commencing 

week  ending 

during  each  month,  beginning  in 

the  month  of 

Width  in  Inches 

Count  per  Inch, Warp Filling. . . . 

Weight: 
No  Shipment  to  average  ( lighter   )  Yards  to 

No  bale  to  be  over  1%  < \  than ^^^  Pound 

No  piece  to  be  over  3%  (  heavier  ) 

Price Cents  per  Yard 

Terms  of  Payment: 

Net days  from  date  of  delivery 

Net days  from  date  of  delivery  less ....  % 

for  payment  within days 

from  date  of  delivery. 
Place  of  Delivery: 

F.O.B.  to  carrier  at with 

freight  allowance. 

F.O.B 

Special  Conditions  : 

Shipping  Instructions: 

If  the  production  of  the  seller  shall  be  curtailed  during 
the  time  above  named,  by  strikes,  lockouts,  or  unavoidable 
casualties,  the  deliveries  shall  be  made  and  accepted  in 
proportion  to  the  production. 


SALES  MANAGEMENT  259 

The  provisions  of  Paragraphs  I,  II,  and  III,  and  the 
allowable  variations  from  specifications  as  adopted  by  The 
American  Cotton  Manufacturers'  Association  and  The 
National  Association  of  Cotton  Manufacturers,  all  as  printed 
on  the  back  hereof,  are  accepted  and  agreed  to  as  a  part  of 
this  contract,  unless  otherwise  stated  herein. 

This  sale  note  is  the  entire  contract  between  the  buyer 
and  seller,  and  any  alteration  in  or  changes  from  the  printed 
form  of  this  contract  must  appear  on  it  in  writing. 

Accepted : 

Boston, 

Form  54. 

Paragraph  I. — Passing  of  Title  on  Delivery.  Unless  other- 
wise specified,  the  title  to  goods  sold  passes  to  the  buyer  (subject 
to  the  right  of  stoppage  in  transilu) : — 

a.  Upon  delivery  F.O.B.  to  carrier,  consigned  to  buyer,  and 

thereafter  goods  are  at  buyer's  risk. 

b.  Upon  arrival  of  goods  at  destination  and  delivery  to 

buyer  of  bill  of  lading  or  of  goods,  in  the  case  of  goods 
to  be  delivered  F.O.B.  elsewhere  than  to  carrier. 

c.  Upon  delivery  of  indorsed  bill  of  lading  or  of  goods,  in 

the  case  of  goods  consigned  to  seller's  order. 

d.  Upon  the  separation  of  the  goods  and  holding  subject  to 

buyer's  order  (the  invoice  to  follow  by  due  course  of 
mail),  in  the  case  of  goods  to  be  held  or  if  buyer  fails 
to  give  shipping  instructions. 

Paragraph  II. — Storage  and  Insurance.  Goods  invoiced 
and  held  subject  to  buj^er's  orders  shall  be  at  buyer's  risk,  but 
covered  by  fire  insurance  effected  by  sellers  in  reputable  companies. 

Paragraph  III. — Rejections  and  Claims.  The  buyer  cannot 
reject  the  goods  for  delay  in  delivery  unless  he  notifies  the  seller 
within  five  business  days  from  receipt  of  bill  of  lading,  or  of  invoice 
if  goods  are  to  be  held.  When  contract  calls  for  delivery  in  instal- 
ments, the  buyer  cannot  cancel  the  contract  for  any  default  in 
any  one  or  more  instahncnts  not  amounting  to  a  substantial  breach 
of  contract,  but  may  cancel  or  replace  at  seller's  expense  any 
delivery  that  is  delayed. 

Buyer  cannot  reject  goods  for  defects  in  quality  or  other  like 
defaults  (a)  if  he  cuts  or  converts  them,  nor  (b)  unless  he  notifies 
seller  within  ninety  days  from  receipt  by  him  or  at  finishing  works 
of  goods  not  held,  or  within  ninety  days  after  date  of  invoice  if 
goods  are  invoiced  and  held ;  nor  (c)  unless  such  defects  amount  to 
a  substantial  breach  of  contract. 

Loss  of  right  to  reject  does  not  deprive  the  buyer  of  his  right 
to  claim  damages,  if  any;  but  no  recovery  shall  be  had  on  any  claim 
not  made  within  one  year  from  receipt  of  goods  or  from  dat«  of 
invoice  if  goods  are  held. 

allowable  variations  from  contract  specifications 
Width.     The  width  shall  not  vary  anywhere  by  more  than 
y%  of  an  inch  below  the  stipulated  width  nor  more  than  5 s  of  an 


2G0  MARKETING  PROBLEMS 

inch  above.  The  width  shall  not  be  uniformly  less  than  the  stipu- 
lated w'dth,  but  must,  in  a  majority  of  places  in  each  piece,  be 
equal  to,  or  greater  than,  the  stipulated  width.  Goods  shall  be 
measured  at  rie;ht  angles  to  the  selvages  when  laid  open  on  a  flat 
horizontal  surface  and  smoothed  out  by  hand,  but  not  f-tretched. 

Warp  Count.  Except  within  four  inches  of  each  selvage 
(where  exclusive  of  the  selvage,  the  count  must  approximate 
that  stipulated),  the  numVjer  of  warp  threads  per  inch  shall 
not  vary  anywhere  by  more  than  one  thread  per  inch  below 
the  stipulated  count,  nor  by  more  than  two  threads  per  inch 
above.  The  number  of  threads  in  each  piece  must  equal  the 
stipulated  count  multiplied  by  the  stipulated  width  plus  the  extra 
threads  used  in  the  selvage. 

Filling  Count.  The  number  of  threads  in  the  filling,  or  weft, 
shall  not  vary  anywhere  by  more  than  three  threads  per  inch  below 
the  stipulated  count,  nor  by  more  than  four  above.  In  the  case  of 
sateens,  when  the  count  of  filling  exceeds  the  count  of  the  warp, 
the  allowance  for  variation  above  specified  shall  be  increased  by 
the  same  percentage  that  the  filling  count  exceeds  that  of  the  warp 
count.  In  any  case  including  sateens,  the  filling  count  per  inch 
shall  not  run  below  the  stipulated  count  throughout  the  piece,  but 
must,  in  a  majority  of  places  in  each  piece,  equal  or  be  more  than 
the  stipulated  count. 

Weight.  In  case  of  controversy  regarding  the  weight  of  goods, 
decision  shall  be  based  on  goods  which  have  been  exposed  for 
twenty-four  hours  to  normal  atmospheric  conditions  approximating 
a  temperature  of  70  degrees  F.  and  a  humidity  of  70  per  cent. 

In  the  past,  whenever  a  sudden  slump  in  business 
conditions  has  occurred,  the  Katahdin  Cotton  Mills, 
like  most  cotton  manufacturers  and  also  like  manufac- 
turers in  numerous  other  industries,  have  suffered  from 
large  scale  cancellations  of  orders  and  from  the  return 
of  merchandise  by  customers.  Heretofore  when  cases 
arising  under  such  conditions  have  been  taken  into 
the  courts,  the  defendants  have  usually  been  able  to 
show  some  defects  in  the  goods  to  serve  as  a  legal 
excuse  for  rejection.  A  piece  of  cotton  cloth  is  never 
fully  perfect.  The  possibility  of  imperfections,  fur- 
thermore, is  intensified  during  the  period  of  feverish 
business  conditions  that  usually  precedes  a  slump  in 
the  market.  At  such  times  labor  is  not  easily  secured, 
and  frequently  the  management,  as  a  matter  of 
expediency,  avoids  the  observance  of  as  rigorous  rules 
of  inspection  as  in  ordinary  times. 

Does  this  contract  provide  adequate  insurance  to 
the  Katahdin  Cotton  Mills  against  a  large  volume  of 


SALES  MANAGEMENT  261 

cancellations  and  returned  goods  in  the  event  of  a 
sudden  slump  in  the  market  in  the  future?' 


'  According  to  newspaper  reports  the  National  Association  of 
Sheet  and  Tin  Plate  Manufacturers,  comprising  about  25%  of  the 
manufacturers  of  sheet  and  tin  plate  goods  in  the  country,  announced 
a  new  contract  in  September,  1916,  designed  to  eliminate  cancellation 
of  orders.  This  contract  bound  the  buyers  to  take  all  orders  placed 
or  pay  a  penalty  of  10%  of  the  contract  price. 

In  the  clothing  trade  another  plan  of  dealing  with  cancellations 
was  adopted  in  April,  1919.  This  plan  is  described  as  follows  in  the 
press  reports: 

"The  establisment  of  the  Mutual  Adjustment  Bureau  of  the 
Cloth  and  Garment  Trades  through  the  activity  of  the  American 
Association  of  Woolen  and  Worsted  Manufacturers,  will  remove  from 
the  wool  manufacturing  industry  an  abuse  that  has  persisted  for 
many  years.  The  unjust  rejection  and  return  of  merchandise  by  cer- 
tain classes  of  buyers  has  been  an  evil  of  considerable  proportions. 
It  had  its  origin  partly  in  the  absence  of  what  might  be  called  a  stand- 
ard for  delivery  and  partly  in  an  insufficient  regard  for  the  meaning 
of  a  contract. 

"In  approaching  the  problem  of  correcting  this  practice,  the 
American  Association  recognized  that,  to  be  effective,  machinery  for 
dealing  with  it  should  be  mutually  maintained.  After  much  consulta- 
tion and  careful  study,  the  plan  of  the  Mutual  Adjustment  Bureau 
was  conceived.  This  organization  will  be  controlled  hy  a  board  of 
governors  appointed  by  the  American  Association  and  the  various 
organizations  of  purchasers  of  cloth.  The  plan  has  been  accepted 
by  the  National  Association  of  Clothiers,  which  has  apjx)intea  its 
representatives.  It  is  now  under  consideration  by  the  cloak  and  suit 
trade  and  the  jobbing  trades.  The  methods  under  which  the  new 
organization  will  operate  will  be  briefly,  as  follows: 

"As  the  name  implies,  the  Bureau  is  for  the  mutual  advantage  of 
the  various  branches  of  the  trade  and  provides  that  merchandise 
shaU  be  judged  solely  on  its  merits.  It  will  at  once  prevent  the  unwar- 
rantable return  of  merchandise  by  u.sers  and  the  imposition  upon 
customers  by  manufacturers  of  cloth  of  inferior  quality. 

"The  board  of  governore  will  appoint  a  director,  who  shall  have 
such  technical  training,  both  from  the  point  of  view  of  the  manufac- 
turers of  cloth  and  the  buyer,  as  will  enable  him  to  pass  impiu-tially 
upon  merchandise  referred  to  the  Mutuai  Adjustment  Bureau  for 
decision.  His  decision  shall  be  made  quickly  and  will  be  final,  subject 
only  to  appeal  to  the  board  of  governors. 

"Milt  will  retain  their  adjusters  as  at  present,  and  buvers  their 
spongers,  and  the  ordinary  differences  of  opinion  will  be  adjusted  in 
the  usual  way;  but  whenever  the  mill's  adjuster  and  the  buyer's 
agent,  generally  the  sponger,  are  unable  to  agree,  the  merchandise 
will  automatically  be  referred  to  the  Bureau. 

"It  is  proposed  to  insert  in  the  copy  of  order  a  clause  providing 
for  final  adjustment  by  the  bureau  of  disputes  as  to  quahty  or  con- 


262  MARKETING  PROBLEMS 

dition  of  merchandise  delivered.  The  mill,  as  the  buyer,  wishing  to 
be  fjiir,  will  have  no  hesitancy  in  submitting  to  the  bureau.  The 
customer  not  willing  will  be  forced  to  the  plan,  because  of  his  inabihty 
to  buy  merchandise  except  subject  to  this  condition. 

"The  new  bur(?au  is  expected  to  do  three  things  for  the  different 
branches  of  the  industry.  P"'or  the  cloth  manufacturer  it  will  impose  a 
closer  examination  of  merchandise  at  the  mill  and  will  result  in  the 
elimination  of  the  return  of  merchandise  without  good  reason. 

"For  the  buyer,  it  will  remove  competition  from  the  unscrupulous 
competitor  who  assumes  no  merchandise  risk,  but  buys  without  regard 
to  tlie  significance  of  a  contract,  expecting  later  to  reject  or  return 
merchandise  he  does  not  want. 

"For  the  sponger,  it  inaugurates  a  new  era  in  which  he  will  be 
able  to  conduct  his  business  as  a  legitimate  merchant,  recognized  as 
a  necessary  part  of  the  industry,  no  longer  having  to  depend  for  his 
success  upon  rejecting  merchandise  and  making  returns  for  no  better 
reason  than  that  the  principal  for  whom  he  does  work  requests  it. 

"The  plan  sets  up  an  organization  mutually  supported  to  dispose 
of  disputes  in  a  speedy  unbiased  way.  Its  establishment  should  avoid 
legal  actions  and  divert  controversies  to  adjudication  by  responsible 
and  capable  machinery." 

In  a  statement  in  the  Iron  Age,  January  15,  1914,  it  was  pointed 
out  that  manufacturers  may  also  be  to  blame  for  cancellations  in  the 
iron  and  steel  industry  by  selling  heavily  without  due  regard  to  the 
ability  of  the  buyer  to  consume  within  the  contract  period.  This 
statement  gives  the  following  quotation  from  a  previous  statement  in 
the  Iron  Age: 

"What  is  worse,  manufacturers  have  sold  without  regard  to  their 
ability  to  deliver.  They  have  also  been  known  to  fail  on  deliveries  to 
contract  customers,  on  a  rising  market,  while  accepting  early  delivery 
business  from  others  who  gladly  paid  a  premium.  There  is  no  doubt, 
moreover,  that  the  guaranteeing  of  prices  against  declines  is  an  impor- 
tant item  in  the  manufacturer's  responsibility  for  present  conditions. 
These  guarantees  are  one  of  the  evils  chargeable  against  the  early 
period  of  the  consolidation  regime  in  the  steel  industry.  Buyers 
argued  at  that  time  that  natural  laws  were  to  a  large  exigent  inopera- 
tive— meaning  that  the  unrestrained  competition  that  had  previously 
prevailed  was  gone — and  that  the  prices  that  were  asked  were  in  a 
sense  artificial.  To  stimulate  demand  under  such  conditions,  sellers 
booked  large  contracts  to  which  guarantees  were  attached." 

In  addition  to  this  quotation  the  follomng  suggestion  was  made: 

"The  time  seems  opportune  for  a  shortening  of  the  sale  period, 
say  to  tliree  months  for  jobbing  or  merchant  buyers,  and  to  six  months 
as  a  maximum  for  manufacturing  consumers.  In  the  exceptional 
cases  in  which  manufacturing  operations  require  yearly  contracts, 
provision  might  be  made,  it  has  been  suggested,  for  cancellations  of 
unspecified  tonnage  by  quarterly  periods,  with  maximum  and  minimum 
amounts,  the  former  not  to  exceed  the  latter  by  more  than  25^. 
Shortening  the  contract  period  is  the  crux  of  the  matter.  That  would 
go  far  toward  eliminating  the  speculative  bujnng  that  has  been  the  arch 
disturber  of  contract  relations."  (/ron  Age,  January  15,  1914,  p.  213.) 

Other  references  on  cancellations  are:  Textile  World  Record, 
May,  1915,  p.  115;  vol.  45,  p.  210;  vol.  47,  p.  569.  Transactions 
National  Association  of  Cotton  Manufacturers,  No.  90,  pp.  212-217; 
No.  91,  pp.  252-257.  Iron  Age,  May  23,  1912,  p.  1266.  Iron  Age, 
February  1,  1912,  p.  317.  American  Machinist,  June  9,  1910,  p.  1077. 
U.  S.  Department  of  Commerce,  Miscellaneoiis  Series  No.  34,  The 
Men's  Factory  Made  Clothing  Industry,  pp.  247-250.  V.  S.  Depart- 
ment of  Commerce,  Miscellaneous  Scries  No.  32,  The  Knit  Underwear 
Industry,  pp.  144r-145.    Daily  News  Record,  May  20,  1920. 


PART  VII 
BRANDS,  TRADE-MARKS  AND  ADVERTISING^ 

THE  problems  in  this  section  illustrate  some  of 
the  chief  points  in  the  determination  of  brand 
and  trade-mark  policies  and  in  the  formulation 
of  advertising  plans. 

169.  Chippewa  Company — Establishing  Demand 

The  Chippewa  Company  is  organized  to  manufac- 
ture automobile  parts,  such  as  bearings,  which  are 
patented.  What  does  the  company  have  to  consider 
in  deciding  whether  or  not  to  undertake  to  establish 
a  reputation  for  its  product  among  consumers  as  well 
as  among  automobile  manufacturers? 


'  References  on  brands  and  trade-marks :  Edward  S.  Rogers, 
Good  Will,  Trade-Marks,  and  Unfair  Trading  (bibliogrupLy).  P.  T. 
Cherington,  Advertising  as  a  Business  Force.  Continental  and  Com- 
mercial Banks,  Chicago,  American  Trade-Marks  Abroad.  Fritilers' 
Ink. 

References  on  advertising:  P.  T.  Cherington,  Advertising  as  a 
Business  Force  and  Advertising  Book — lUlO.  Melvin  T.  Copeland, 
Business  Statistics.  D.  Starch,  Advertising.  H.  L.  Uollingworth, 
Advertising  and  Selling.  J.  B.  Opdj'cke,  Advertising  and  Selling  Prac- 
tice. J.  L.  Mahin,  Advertising — Selling  the  Consumer.  Curtis  Publishing 
Company,  Selling  Forces.  \V.  A.  iShryer,  Analytical  Advertising. 
H.  Tipper,  Principles  of  Advertising.  H.  Tipjx^r,  G.  B.  Hotchkiss, 
H.  L.  HoUingworth,  and  F.  L.  Parsons,  Advertising,  Its  Principles  and 
Practice.  A.  P.  Johnson,  Library  of  Advertising,  G  volumes.  E.  E. 
Calkins,  The  Business  of  Advertising.  H.  VV.  Hess,  Productive  Ajdver- 
tising.     Printers'  Ink.     Advertising  and  Selling. 

263 


264  MARKETING  PROBLEMS 

170.  Jackson  Brothers — Establishing  Demand 

Jackson  Brothers,  a  firm  located  in  a  city  in  the 
Middle  West,  manufacture  brass  founts  for  oil  stoves. 
Their  product  is  not  patented ;  it  is  sold  entirely  to  oil 
stove  manufacturers.  What  factors  must  this  firm 
consider  in  deciding  whether  or  not  to  undertake  to 
establish  an  individual  reputation  for  its  product  among 
consumers  who  use  oil  stoves? 


171.  Berkeley  Shoe  Company  —  Use  of  Branded 

Parts 

In  1916  the  Goodyear  Rubber  Company  commenced 
a  wide  campaign  for  the  sale  of  Neolin  soles. ^  This 
product  was  branded,  and  an  extensive  advertising 
campaign  to  consumers  was  undertaken.  About  the 
same  time  other  manufacturers  also  put  fibre  soles  on 
the  market. 

The  Berkeley  Shoe  Company,  producing  men's 
shoes  of  medium  quality  sold  under  the  manufacturer's 
brand  direct  to  retail  merchants,  had  occasion  to  con- 
sider whether  it  should  use  branded  fibre  soles  in  its 
product. 

Assuming  that  the  fibre  soles  were  durable,  was  it 
advisable  for  this  manufacturer  to  use  branded  fibre  soles? 

To  meet  the  competition  of  fibre  soles,  one  of  the 
large  tanners  started  an  advertising  campaign  for 
branded  leather  soles.  In  how  far  should  the  same 
factors  govern  the  decision  of  the  Berkeley  Shoe  Com- 
pany regarding  the  use  of  branded  leather  soles  as  in 
deciding  upon  the  use  of  branded  or  unbranded 
fibre  soles? 

1  C.  R.  Johnson,  "Was  Shortage  of  Raw  Mateiial  Capitalized  in 
Neolin  Advertising?"  Printers'  Ink,  May  3,  1917,  pp.  3-12. 


BRANDS,  TRADE-MARKS,  ADVERTISING    265 

172.  Merrimac  Flour  Milling  Company — 
Cooperative  Sales  Plan 

The  Merrimac  Flour  Milling  Company,  with  a 
plant  of  2,200  barrels  daily  capacity,  located  in  Minne- 
sota, is  requested  to  join  with  five  other  Minnesota 
mills  in  the  organization  of  a  cooperative  selling  agency. 
The  daily  capacities  of  the  other  mills  are  as  follows : — 
Mill  A,  2,500  bbls.;  Mill  B,  2,700  bbls.;  Mill  C,  900 
bbls.;  Mill  D,  1,200  bbls.;  Mill  E,  1,800  bbls. 

These  mills  heretofore  have  sold  their  products 
unbranded  through  agents  and  direct  to  wholesalers 
and  bakers.  These  bills,  including  the  Merrimac 
Company,  have  yielded  average  profits. 

The  proposed  plan  provides  for  the  incorporation 
of  the  selling  agency  with  a  nominal  capital  of  S60,000 
in  six  shares  of  $10,000  each.  Each  mill  is  to  have  one 
share.  The  selling  agency  is  to  be  managed  entirely 
by  a  board  of  six  directors,  one  from  each  mill.  This 
agency  is  to  have  complete  control  over  the  marketing 
of  the  entire  product  of  the  mills.  An  advertised 
brand  is  to  be  developed,  and  in  addition  to  the  central 
office  in  Minneapolis  branch  oflfices  will  be  opened  in 
New  York  and  Boston,  other  branches  to  be  added  as 
the  growth  of  the  business  warrants.  The  manage- 
ment of  each  mill,  including  the  purchasing  of  raw 
material,  is  to  remain  in  the  hands  of  its  present  own- 
ers. After  paying  dividends  at  the  rate  of  6%  per 
year  on  the  capital  stock  of  the  selling  agency,  profits 
are  to  be  divided  in  proportion  to  the  capacities  of 
the  mills. 

Should  the  Merrimac  Flour  Milhng  Company 
enter  the  proposed  organization? 


173.  Muskegon  Company — Good-will 

The   Muskegon    Company    manufactures   a   high 
quahty  food  product  that  is  widely  advertised.  Because 


266  MARKETING  PROBLEMS 

of  the  risk  of  possible  embarrassment  to  the  plans  of 
the  company  for  which  this  name  is  assumed,  it  is 
impractical  to  describe  the  product  exactly. 

In  the  manufacture  of  this  product  one  of  the  chief 
materials  is  A,  and  the  product  has  been  sold  in  all 
parts  of  the  United  States  as  the  AC  product  of  the 
Muskegon  Company.  The  supply  of  material  A  is 
limited  and  highly  irregular  from  year  to  year. 

Another  material,  B,  could  be  used  in  place  of 
material  A  without  the  least  injury  to  the  product. 
If  that  were  done,  however,  the  product  could  not  be 
sold  as  the  AC  product,  because  of  the  pure  food 
laws.  The  supply  of  material  B  is  large  and  regular. 
The  company  has  a  large  stock  of  material  B  on  hand, 
acquired  for  other  purposes  for  which  it  cannot  now 
be  used.  From  the  consumer's  standpoint,  there  is 
no  difference  in  the  quality  of  the  product  whether 
material  A  or  material  B  is  used.  From  the  produc- 
tion standpoint,  the  company  would  be  assured  of 
greater  regularity  in  the  operation  of  its  plant,  if  it 
were  able  to  use  either  material  A  or  material  B  at 
its  option.  A  large  amount  of  good-will  is  attached  to 
the  brand  of  the  AC  product. 

Should  the  Muskegon  Company  introduce  a  new 
brand  for  the  product  made  from  material  B  and  con- 
tinue the  AC  product,  or  should  it  introduce  a  new 
brand,  in  the  manufacture  of  which  both  A  and  B 
could  be  used,  thus  superseding  entirely  the  AC 
product?  Or  should  it  solve  this  problem  in  some 
other  way? 


174.  Greenwood  and  Day — Packing  Hosiery 

The  following  statement  was  issued  October  1st, 
1918,  by  the  Conservation  Division  of  the  War 
Industries  Board: 


BRANDS,  TRADE-MARKS,  ADVERTISING    267 

To  Hosiery  Manufacturers: 

In  the  present  emergency  it  is  of  primary  importance 
that  the  country's  resources  be  used  to  full  advantage  and 
that  we  husband  our  supplies  of  material,  equipment  and 
capital  to  aid  in  carrying  on  the  war.  In  addition,  it  is 
imperative  to  conserve  every  availal)le  cul)ic  inch  of  car 
carrying  capacity.  The  Conservation  Division  of  the  War 
Industries  Board,  in  cooperation  with  various  industries, 
has  already  put  into  effect  plans  of  economy  in  packing  in 
order  that  materials  and  railroad  equipment  can  be  saved 
and  the  number  of  available  freight  cars  be  increased  to 
assist  in  furthering  the  war  program. 

It  appears  that  manufacturers  of  hosiery  can  materially 
reduce  the  bulk  of  their  freight  packages  by  substituting 
the  paper  bundle  for  the  cardboard  iK)x.  The  enclosed 
program  has  been  drawn  up  with  the  assistance  and  advice 
of  representatives  of  all  branches  of  the  industry.  It  will 
be  made  effective  as  it  is  now  issued  unless  substantial 
reasons  are  immediately  presented  to  show  that  by  some 
modification  the  needs  of  the  government  can  be  met  more 
effectually. 

In  putting  the  provisions  of  this  program  into  effect  it 
is,  of  course,  essential  that  care  be  exercised  in  the  packing 
of  all  merchandise  for  shipment,  not  only  to  reduce  the 
amount  of  space  in  freight  packages,  but  adequately  to 
protect  the  goods  from  danger  of  injury  in  transit.  For 
instance,  we  would  suggest  the  use  of  No.  1  sulphite 
wrapping  paper  of  not  loss  than  50  lbs.  (24x3G,  480  sheets  to 
the  ream),  for  the  wrapping  of  packages  of  one-half  dozen 
and  dozen  suits  of  underwear.  For  the  wrapping  of  hosiery 
up  to  and  including  one  dozen  pairs  to  the  package,  not  less 
than  40  lb.  wrapping  paper  should  be  used.  Where  neces- 
sary to  protect  the  merchandise  from  injury,  cardboard 
inserts  should  be  used  in  paper  packages. 

While  this  schedule  is  not  operative  until  January  1, 
1919,  it  is  understood  that  all  manufacturers  will  put  it 
into  effect  as  rapidly  as  possible.  W^e  shall  be  glad  to  receive 
any  suggestions  that  you  may  have  to  submit  whereby 
greater  economies  can  be  brought  about. 

Will  you  please  acknowledge  receipt  of  this  letter  and 
schedule  promptly,  assuring  this  Division  of  your  loyal  and 
wholehearted  cooperation,  which  will  aid  materially  in 
carrying  out  the  war  progam. 

Conservation  Division, 
274-6600  War  Industries  Board. 

SCHEDULE    FOR   PACKING    HOSIERY 

1.  All  84  needle  and  100  needle  gauge  cotton  hose  and 
half  hose  fo  be  wrapped  in  paper  bundles,  without  cardboard, 
one  dozen  pairs  to  a  bundle. 


268  MARKETING  PROBLEMS 

2.  All  cotton  half  hose  198  gauge  or  under  and  all  cotton 
half  hose  weighing  more  than  1  lb.  8  oz.  per  dozen,  and  selling 
up  to  $3.00  per  dozen  at  the  mill  to  be  wrapped  in  paper 
bundles  with  or  without  cardboard. 

3.  All  ladies'  cotton  hose  198  gauge  or  under  and  weigh- 
ing over  1  lb.  12  oz.  per  dozen  and  selling  up  to  $3.25  per 
dozen  at  the  mill  to  be  wrapped  in  paper  bundles  with  or 
without  cardboard. 

4.  All  goods  commercially  known  as  "out  sizes"  or 
"extra  sizes"  to  be  wrapped  in  paper  bundles,  one  dozen  pairs 
to  the  bundle,  or  in  cardboard  boxes  one  dozen  pairs  to 
the  box. 

5.  All  other  cotton,  lisle  and  mercerized  ladies'  hose  and 
half  hose  to  be  wrapped  in  paper  bundles,  one  dozen  pairs  to 
the  bundle,  or  packed  in  cardboard  boxes,  one  dozen  pairs 
to  the  box. 

6.  All  infants'  cotton,  silk,  lisle  and  cashmere  socks  and 
stockings  selling  up  to  $3.00  per  dozen  at  the  mill  to  be 
packed  in  boxes,  not  less  than  one  dozen  pairs  to  the  box. 

7.  All  infants'  cotton,  silk  and  lisle  and  cashmere  socks 
and  stockings  selling  at  over  $3.00  per  dozen  at  the  mill  to 
be  packed  in  boxes,  not  less  than  one-half  dozen  pairs  to 
the  box. 

8.  All  misses'  and  boys'  cotton  ribbed  and  fiat  hosiery 
selling  up  to  $3.00  per  dozen  on  8"  at  the  mill  to  be  wrapped 
in  paper  bundles,  one  dozen  pairs  to  the  bundle. 

9.  All  misses'  and  boy's  cotton  ribbed  and  flat  hosiery 
selling  at  $3.00  per  dozen  on  8"  and  up  to  $4.00  per  dozen 
on  8"  at  the  mill  to  be  packed  in  boxes,  one  dozen  pairs  to 
the  box. 

10.  All  misses'  and  boys'  cotton  ribbed  and  flat  hosiery 
selling  at  $4.00  per  dozen  on  8"  and  over  at  the  mill  to  be 
packed  in  boxes,  one-half  dozen  pairs  to  the  box. 

11.  All  silk  and  artificial  silk  hosiery  selling  at  less  than 
$5.00  per  dozen  at  the  mill  to  be  packed  in  boxes,  one  dozen 
pairs  to  the  box. 

12.  All  silk  and  artificial  silk  hosiery  selling  at  $5.00 
per  dozen  and  up  to  $12.00  per  dozen  at  the  mill  to  be  packed 
in  boxes,  not  less  than  one-half  dozen  to  the  box. 

13.  All  merino,  wool  and  worsted  half  hose  120  needle 
gauge  and  under,  and  all  others  weighing  over  1  lb.  10  oz. 
per  dozen  and  selling  up  to  $6.00  per  dozen  at  the  mill 
to  be  wrapped  in  paper  bundles,  one  dozen  pairs  to  the 
bundle. 

14.  All  merino,  wool  and  worsted  half  hose,  over  136 
needle  gauge  and  selling  at  $6.00  per  dozen  or  more  at  the 
mill  to  be  packed  in  boxes,  one  dozen  pairs  to  the  box. 

15.  All  ladies'  and  children's  merino,  wool  and  worsted 
hosiery  selling  up  to  $6.25  per  dozen  at  the  mill  to  be  packed 
in  boxes,  one  dozen  pairs  to  the  box. 


BRANDS,  TRADE-MARKS,  ADVERTISING    269 

16.  All  ladies'  and  children's  merino,  wool  and  worsted 
hosiery  selling  at  S6.25  per  dozen  or  more  at  the  mill  to  he 
packed  in  boxes,  not  less  than  one-half  dozen  pairs  to  the  box. 

17.  All  seconds  of  men's,  women's,  children's,  and 
infants'  hosiery  selling  up  to  S6.00  per  dozen  at  the  mill  to 
be  wrapped  in  paper  bundles,  one  dozen  pairs  to  the  bundle. 

18.  All  seconds  selling  for  $6.00  per  dozen  or  more  at 
the  mill  to  be  packed  in  boxes,  one  dozen  pairs  to  the  box. 

19.  All  hosiery  packed  in  boxes  to  be  packed  not  less  than 
four  pairs  to  the  box. 

20.  When  packed  in  bundles,  sufficient  quantity  and 
strength  of  paper  to  be  used  completely  to  enclose  the 
hosiery.  The  bundles  to  be  properly  secured  with  either 
gummed  strips  or  twine  of  sufficient  strength  to  insure  the 
safe  arrival  of  the  bundles  at  destination. 

21.  All  boxes  to  be  made  in  the  smallest  dimensions 
possible;  merchandise  to  fill  the  boxes  completely. 

22.  All  box  flies  to  be  eliminated. 

23.  The  use  of  wrapping  paper  for  packing  hosiery,  when 
packed  in  boxes  and  then  in  cases  for  shipment,  to  be 
eliminated. 

24.  Cases  used  in  packing  bundles  or  boxes  for  shipment 
to  be  filled  completely  with  merchandise  and  all  waste 
space  to  be  eliminated. 

25.  Wooden  cases  to  be  made  with  solid  or  closely  fitted 
side-ends,  top  and  bottom  securely  fastened.  Wooden  cases 
of  unusual  size  for  carrying  unusual  weight  to  be  stripped  or 
reinforced  by  cleats. 

26.  Fibre  boxes,  when  used,  to  comply  with  standard 
railroad  classification  requirements. 

Greenwood  and  Day,  a  firm  of  dry  goods  whole- 
salers in  an  Eastern  city,  agreed  to  carry  out  this 
schedule  with  the  trade  because  of  war  conditions. 
They  made  the  agreement,  however,  with  deep  reluc- 
tance. The  sales  of  this  firm  in  all  departments  were 
over  $1,250,000  a  year.  Hosiery  was  a  substantial 
item  in  their  sales.  Two-thirds  of  the  hosiery  that 
they  sold  was  put  out  under  their  own  brands. 

Why  was  this  firm  reluctant  to  adopt  this  schedule? 


270  MARKETING  PROBLEMS 

175.  Victor  Company — Relation  of  Labor  Policies 
TO  Sales  Policies 

The  Victor  Company  operates  a  factory  in  a  city 
in  Ohio  for  the  manufacture  of  workmen's  overalls. 
The  company  plans  to  expand  its  market,  and  for  this 
purpose  contemplates  an  extension  of  its  plant.  Up 
to  the  present  time,  because  of  the  personal  views  of 
the  general  manager  of  the  company,  its  plant  has 
been  operated  as  an  open-shop.  Employees  have  been 
free  to  join  a  trade  union,  but  the  union  has  not  been 
recognized  in  collective  bargaining.  A  demand  for  the 
recognition  of  the  union  has  recently  been  presented 
by  a  portion  of  the  employees. 

How  will  the  decision  of  the  management  on  the 
recognition  of  the  union  influence  the  company's  sales 
policies? 


176.  Knight  &  Company — Royal  Flour  Mills — 
Brands 

The  Ejiight  brand  of  flour  is  a  private  brand  of 
Knight  &  Company,  Boston  wholesalers,  for  whom 
the  flour  is  manufactured  by  the  Sparrow  Flour  Mills 
in  Minnesota.  This  brand  of  flour  is  advertised  and 
sold  widely  in  New  England.  It  is  said  to  be  very 
similar  to  the  Royal  brand  of  flour  which  is  manufac- 
tured by  the  Royal  Flour  Mills  in  the  same  district  in 
Minnesota  in  which  the  Sparrow  mills  a:re  located. 
The  Royal  brand  is  advertised  nationally. 

Is  there  any  reason  why  the  consumer  in  New 
England  should  favor  one  of  these  brands  as  against 
the  other? 


BRANDS,  TRADE-MARKS,  ADVERTISING    271 

177.  Diamond  Stove  Company — Wholesaler's 
Brands 

The  Diamond  Stove  Company  operates  a  medium- 
size  factory  for  the  manufacture  of  oil  stoves.  The 
entire  output  of  the  plant  is  sold  to  15  to  20  whole- 
salers under  the  wholesalers'  private  brands.  There 
are  minor  variations  in  the  product  manufactured  for 
each  wholesaler  with  the  result  that  92  sizes  and  types 
of  stoves  are  made.  Of  several  large  competitors  sell- 
ing their  products  under  manufacturers'  brands,  each 
produces  12  to  25  types  and  sizes. 

What  is  to  be  said  in  favor  of  the  policy  of  the 
Diamond  Stove  Company?    What  are  its  drawbacks? 


178.  Allagash  Company — Wholesalers'  Brands 

The  Allagash  Company,  manufacturing  edge  tools 
of  good  quality,  has  been  selling  its  product  to  whole- 
salers unbranded  or  bearing  wholesalers'  brands. 
Such  brands  as  have  been  used  have  not  been  given 
much  significance  on  this  product.  The  Allagash 
Company  has  received  an  offer  from  a  strong  whole- 
sale hardware  company  to  take  the  entire  product  of 
the  Allagash  Company  for  a  period  of  three  years  to 
be  sold  under  the  wholesaler's  brand.  The  price  that 
is  offered  is  satisfactory.  The  wholesaler's  brand  that 
is  to  be  used  on  these  tools  is  the  same  brand  that  is 
applied  to  a  wide  variety  of  other  articles. 

Should  the  Allagash  Company  accept  this  offer? 


272  MARKETING  PROBLEMS 

179.  Oswego  Paper  Company — Foreign  Trade 
Brands 

The  Oswego  Paper  Company  has  a  large  domestic 
business  and  during  the  war  it  also  had  a  substantial 
volume  of  export  orders,  particularly  from  South 
America.  For  several  years  the  company  accepted 
orders  from  export  houses  in  New  York.  These  export 
houses  insisted  upon  the  use  of  their  private  brands  on 
this  paper.  In  the  domestic  trade  the  company  has 
sold  its  product  to  jobbers  entirely  under  its  own  brand, 
but  in  order  to  obtain  a  share  in  the  foreign  business  it 
accepted  these  orders  under  the  conditions  prescribed 
by  the  export  houses.  The  Oswego  Paper  Company 
found  that  it  was  forced  to  bid  on  all  reorders  because 
of  the  control  of  the  trade-marks  by  the  export  houses. 

It  was  proposed  that  a  new  export  company  should 
be  established  for  which  the  Oswego  Paper  Company 
should  provide  a  large  portion  of  the  capital  with  the 
definite  understanding  that  this  export  company  would 
sell  the  product  of  the  Oswego  Paper  Company  under 
the  Oswego  trade  mark. 

Should  the  Oswego  Paper  Company  have  accepted 
this  plan? 


180.  Saginaw  Soap  Company — Foreign  Trade 

Brands 
The  Saginaw  Soap  Company  manufactures  scour- 
ing soap  for  sale  under  its  own  trade-mark  in  the 
United  States.  Recently  the  company  received  several 
orders  from  importers  in  South  America.  These  im- 
porters, however,  insisted  upon  the  use  of  their  own 
private  brands  on  this  soap.  The  soap  is  of  good 
quality  and  can  hold  its  own  in  competition  on  either 
a  price  or  a  quality  basis. 


BRANDS,  TRADE-MARKS,  ADVERTISING    273 

Should  the  Saginaw  Soap  Company  have  accepted 
these  orders  from  South  American  importers  under 
these  conditions? 


181.  Broadway  Department  Store — Private 
Brands 

The  Broadway  Department  Store  in  New  York 
City  operates  a  shoe  department  in  which  the  annual 
sales  are  $850,000  a  year.  As  a  matter  of  policy,  this 
store  sells  only  shoes  that  bear  its  own  name  or  that 
are  unbranded.  It  places  large  orders  with  manufac- 
turers who  advertise  their  own  trade-marks,  but  the 
Broadway  Store  refuses  to  have  the  manufacturers' 
trademarks  on  the  shoes  that  it  purchases.  The  pur- 
chase prices  are  about  the  same  for  the  private-brand 
shoes  as  for  shoes  bearing  the  manufacturers'  trade- 
marks. The  Broadway  Store  also  buys  from  other 
manufacturers  who  make  only  retailers'  and  wholesalers' 
private-brand  shoes. 

The  Broadway  Store  sells  both  high-price  and 
medium-price  shoes.  It  seeks  to  keep  abreast  of 
style  changes.  The  Broadway  Store  also  gives  con- 
stant attention  to  the  development  of  new  lasts  that 
will  better  meet  the  needs  of  its  customers. 

Is  the  Broadway  Store  justified  in  its  adherence  to 
this  private-brand  poUcy?^ 


'A  statement  of  the  views  of  Beveral  merchants  on  retailers' 
private  brands  is  given  in  Printers'  Ink,  March  27,  1913,  pp.  108-112. 


274  MARKETING  PROBLEMS 

182.  Niagara  Clothing  Company — Retailers' 
Brands 

The  Niagara  Clothing  Company,  Rochester,  New 
York,  which  manufactures  men's  clothing  of  good 
quahty,  has  adopted  the  policy  of  selling  its  product  to 
retailers  to  be  sold  under  the  retailers'  private  labels. 
The  entire  output  of  this  company  is  disposed  of  in 
this  way. 

How  does  this  policy  affect  the  selling  problems  of 
the  Niagara  Clothing  Company? 


183.  United  States  Rubber  Company — Blanket 
Trade-mark 

According  to  a  statement  in  Printers'  Ink  in  1916,^ 
the  United  States  Rubber  Company  had  decided  to 
adopt  a  blanket  trade-mark^  to  be  used  on  the  products 
of  its  subsidiary  companies.  It  was  stated  that  this 
trade-mark  was  to  resemble  a  ribbon  composed  of 
three  stripes  of  equal  width,  the  one  in  the  center 
being  white  and  the  other  two  blue.  The  seal  of  the 
United  States  Rubber  Company  or  the  trade-mark  of 
the  particular  product  being  advertised  or  sold  was 

1  Printers'  Ink,  March  30,  1916,  pp.  25-27. 

^  Armour  &  Company  developed  the  "Over  Label"  as  a  blanket 
trade-mark  for  many  of  the  Armour  products.  Printers'  Ink,  January 
23,  1913,  pp.  3-10;  February  27,  1913,  pp.  3-8.  The  N.  K.  Fairbank 
Company,  on  the  other  hand,  which  manufactures  Snow  White, 
Fairco  and  Boar's  Head  for  shortening,  Cottolene,  a  cooking  fat,  Covo, 
a  salad  oil,  Gold  Dust,  Fairy  Toilet  Soap,  Fairy  Flakes,  Pummo  hand 
soap,  Glycerine  tar  soap,  Polly  Prim  scouring  soap.  Sunny  Monday, 
Santa  Claus,  Clairette,  Dandy,  Ark,  Mascot,  and  Chicago  Family 
laundry  soaps,  has  avoided  the  use  of  a  blanket  trade-mark  and  has 
not  sought  to  identify  these  products  with  the  name  of  the  company 
manufacturing  them.  Printers'  Ink,  June  12,  1919,  pp.  17-18.  Other 
references  on  the  use  of  the  blanket  trade-marks  are  Printers'  Ink, 
February  25,  1915,  pp.  41-56;  August  19,  1915,  pp.  3-8,  85-91;  Feb- 
ruary 1,  1917,  pp.  3-8,  95-105;  July  10,  1919,  pp.  3-6,  141-146. 


BRANDS,  TRADE-MARKS,  ADVERTISING    275 

to  be  superimposed  on  the  ribbon.  The  size  of  this 
new  trade-mark  was  to  vary  according  to  the  product 
on  which  it  was  used.  It  was  stated  that  the  trade- 
mark would  appear  in  so  far  as  possible  on  the  goods 
themselves  and  also  on  the  packages.  It  was  to  be 
used,  furthermore,  in  some  way  in  all  the  advertising 
of  the  United  States  Rubber  Company. 

It  was  stated  that  at  that  time  the  United  States 
Rubber  Company  had  allied  with  it  about  fifty  subsi- 
diary concerns  which  manufactured  a  group  of  products 
each  using  a  variety  of  well-established  trade-marks. 
Over  one  thousand  separate  articles  were  manufactured, 
including  automobile  tires,  footwear,  gloves,  bicycle 
tires,  bathing  caps,  and  many  others. 

What  advantages  might  be  expected  to  accrue  to 
the  United  States  Rubber  Company  from  the  adoption 
of  this  policy?  What  apparently  would  be  the  obstacles 
to  be  overcome  in  making  it  successful? 


184.  Equality  Rubber  Company — Blanket 
Trade  Mark 

The  Equality  Rubber  Company  has  recently  been 
organized  with  a  capitalization  of  $1,000,000  to  manu- 
facture automobile  tires  and  other  rubber  products. 
The  company  has  made  arrangements  which  assure  it 
of  an  adequate  supply  of  raw  material  and  has  com- 
menced the  construction  of  its  manufacturing  plants. 
It  has  not  yet,  however,  determined  upon  its  brand 
policy. 


276  MARKETING  PROBLEMS 

Is  it  probable  that  the  Equality  Rubber  Company 
will  find  it  advantageous  to  adopt  a  single  trademark 
for  all  its  products? 


185.  Virginia  Stove  Company — Selection  and 
Registration  of  Trade-Mark 

The  Virginia  Stove  Company  has  been  engaged  for 
twenty-five  years  in  the  manufacture  of  stoves  and 
ranges.  The  company's  products,  which  have  been 
sold  in  Virginia  and  neighboring  states,  have  borne  the 
name-plate  of  the  company  as  a  trade-mark.  This 
company  recently  has  decided  to  engage  in  the  manu- 
facture of  electric  stoves,  heaters,  and  irons.  One  of 
the  problems  is  the  selection  of  a  trade-mark  for  these 
new  products. 

What  points  must  be  considered  in  making  the 
selection  of  a  trade-mark?  ^  What  benefits  would  accrue 
from  having  it  registered? 


^  P.  T.  Cherington,  Advertising  as  a  Business  Force,  pp.  331-378. 
Edward  S.  Rogers,  Good  Will,  Trade-Marks,  and  Unfair  Trading. 
J.  H.  Carnes,  "Things  Often  Misunderstood  in  Connection  with 
Trade-Marks,"  Printers'  Ink,  July  10,  1915,  pp.  47-56.  R.  W.  Johnson. 
"Why  Should  a  Trade-Mark  be  Registered?",  Printers'  Ink,  April 
29,  1920,  pp.  60-65.  A.  B.  Remick,  "Why  Trade-Marks  Should  be 
Registered,"  Printers'  Ink,  May  18,  1916,  pp.  111-114. 


BRANDS,  TRADE-MARKS,  ADVERTISING    277 

186.  Narragansett  Wholesale  Grocery  Company 
— Method  of  Accounting  for  Advertising 

Expenditures 
In  the  System  of  Operating  Accounts  for  Whole- 
sale  Grocers   published   by   the   Harvard  Bureau   of 
Business  Research,  the  following  statement  is  made 
regarding  interest  on  the  net  investment  in  the  business  } 

Every  business  should  yield  the  owner  interest  at  a  fair 
rate  on  the  capital  invested.  This  interest  charge  should  be 
reckoned  as  one  of  the  items  of  expense. 

The  debits  to  this  account  (interest  on  capital-owned), 
made  at  inventory  time,  are  for  interest  on  the  net  invest- 
ment in  tangible  property  in  the  wholesale  business,  exclusive 
of  realty.  The  rate  of  interest  is  that  received  on  reasonably 
secure,  long-term  investment  in  the  section  where  the  busi- 
ness is  located.  The  net  investment  on  which  interest  is 
charged  excludes  owned  realty,  because  the  cliarge  for  realty 
is  included  in  Rent.  Besides  realty,  net  investment  also 
excludes  good-will  in  any  form.  Ordinarily  the  net  invest- 
ment in  a  wholesale  grocery  business,  on  which  interest  is 
charged,  is  the  difference  between  the  sum  of  the  assets — 
cash,  merchandise  on  hand  and  equipment  at  depreciated 
value,  notes  and  accounts  receivable,  and  prepayments 
(such  as  prepaid  insurance),  and  the  sum  of  the  liabilities — 
notes  and  accounts  payable  and  accrued  items. 

If  the  business  is  incorporated,  the  method  of  determining 
the  net  investment  is  the  same.  Stock,  authorized  or  issued, 
is  excluded  for  it  has  no  effect  on  the  net  investment  of  the 
business. 

This  account  is  credited  with  interest  received  on  bank 
balances  and  interest  collected  on  overdue  accounts;  prefer- 
ably these  items  are  kept  separate  during  the  period  and 
closed  into  this  account  at  inventory  time.  If  interest  on 
overdue  accounts  is  added  to  customers'  invoices,  the 
amount  collected  is  credited  here  and  not  included  in  Net 
Sales.  The  balance  of  this  account  is  the  entry  on  the  Profit 
and  Loss  Statement  for  expense  for  interest  on  capital  owned. 
All  debits  to  this  account  are  at  the  same  time  credits  to 
Interest  and  Rentals  Earned. 

Should  this  statement  be  modified  to  include  in  the 
investment  any  expenditure  for  advertising? 

Take  the  Narragansett  WTiolesale  Grocery  Com- 
pany for  example,  which  spends  about  $31,000  each 

'  Bureau  of  Business  Research,  Harvard  University,  Bulletin 
No.  8,  System  of  Operating  Accounts  for  WhoUtsalc  Grocers^  p.  21. 


278  MARKETING  PROBLEMS 

year  at  the  present  time  in  advertising  its  specialties 
and  in  "dealer  helps."  The  annual  sales  of  the  com- 
pany are  about  $2,300,000. 

What  specific  portion,  if  any,  of  this  expenditure 
for  advertising  should  be  included  in  the  investment 
of  the  Narragansett  Wholesale  Grocery  Company?' 


*The  following  editorials  were  published  in  Printers^  Ink: — 

"Sales  practices  in  the  automobile  business  do  not  vary  much. 
The  'stunts'  are  few.  Selling  cars  is  a  question  of  finding  prospects 
and  going  after  them  in  person.  After  the  goodness  of  the  car,  and  the 
goodness  of  the  advertising,  it  is  a  question  of  organization,  sales 
personnel,  sales  management.  And  so  the  stimulation,  and,  better 
still,  the  permanent  invigoration  of  the  force,  is  an  important  accom- 
plishment. 

"The  theory  and  its  apphcations  are  reflected  in  the  results. 
The  latter  show  how  far  the  management  are  theorists  and  nothing 
more.  It  is  interesting  to  learn,  as  we  do  from  a  stock  circular  through 
which  the  Chalmers  Motor  Company  asks  $1,500,000  fresh  capital, 
that  the  original  investment  in  the  business  was  $300,000  and  that  'all 
of  its  present  tangible  assets  of  $6,900,386.54,  with  the  exception  of 
the  $1,500,000  preferred  stock,  have  been  acquired  entirely  out  of 
surplus  earnings.' 

"It  is  interesting  in  this  regard  to  observe  the  experience  of  the 
National  Biscuit  Company,  also  a  large  advertiser.  The  latter  is 
said,  in  a  market  report,  never  to  have  issued  any  securities  to  finance 
its  growth  since  its  organization.  The  business,  on  the  contrary,  has 
been  so  successful  that  it  has  been  thought  wise,  according  to  the  same 
report,  to  let  a  large  amount  of  its  earnings  go  into  property  or  mis- 
cellaneous equities  and  not  have  them  show  up  in  the  income  account. 

"In  view  of  the  large  part  played  by  advertising,  patents,  trade- 
marks, good  will  and  other  like  claims  on  popular  esteem  in  promoting 
these  two  concerns  the  uninformed  would  look  with  interest  to  see  the 
valuation  set  down  against  these  in  the  general  balance. 

"The  result  might  be  mystif  jdng.  He  would  find  that  the  Chalmers 
Company  summed  these  all  up  at  just  $1,  despite  the  fact  that  they 
have  a  book  value  of  more  than  $350,000  and  a  net  tangible  value 
according  to  an  appraisal  company  of  more  than  $550,000. 

"No  notice  whatever  is  taken  of  good  will,  advertising,  brands,  etc., 
in  the  National  Biscuit  published  balance. 

"This  excess  of  modesty  may  be  and  perhaps  is  good  practice 
from  a  banking  point  of  view,  but  it  is  advertising's  misfortune,  because 
it  minimizes  or  ignores  advertising's  pait  in  the  success  of  tht  institution. 

"The  practice  of  another  industrial  concern  and  large  advertiser, 


BRANDS,  TRADE-MARKS,  ADVERTISING    279 

the  Agricultural  Chemical  Company,  is  difTerent.  Its  patents,  brands, 
trade-marks,  etc.,  are  valued  at  some  $15,000,000.  Says  Treasurer 
Thomas  A.  Doe  in  a  letter  to  Printers'  Ink: 

"  'The  figures  are  not  the  result  of  an  exact  or  scientific  basis  of 
estimate,  but  originally  represented  the  actual  cost  to  this  company, 
represented  practically  entirely  by  common  stock.  From  the  original 
amount  at  which  these  assets  were  carried  arbitrary  reductions  have 
been  made  as  the  business  or  conditions  warranted.  These  assets, 
although  intangible,  had  and  have  intrinsic  value.  Nevertheless,  it  has 
been  the  policy  of  the  company  to  reduce  the  amount  from  time  to 
time  when  found  advisable.' 

"There  may  be  some  difficulty  in  arriving  at  definite  figures  in 
any  given  case,  but  it  would  unquestionably  be  better  for  advertising 
if  it  were  done."     Printers'  lick,  September  IS,  1913,  pp.  83-84. 

"The  collar  and  shirt  business  of  Cluett,  Peabody  &  Co.  is  one  of 
the  largest — if  not  the  largest — in  the  world.  Its  profits  for  the  last 
four  years  are  certified  to  be  as  follows: — 

1909  $1,284,809 

1910  1,587,338 

1911  1,602,763 

1912  1,741,243 

"These  interesting  figures  of  a  notable  industrial  success  come 
out  in  connection  with  the  turning  of  the  company  into  an  $18,000,000 
corporation  and  the  famiUar  procedure  of  selling  preferred  stock  to 
the  public.  It  is  obvious  that  a  very  large  proportion  of  the  assets 
against  which  tliis  heavy  flotation  is  made  consists  of  what  is  known 
as  'good  will.'  Just  how  large  the  proportion  is  the  company  has  not 
seen  fit  to  declare,  for  the  balance  sheet  presented  to  prospective  in- 
vestors shows  'good  will'  lumped  in  with  various  other  items  as  follows: 

"  'Real  estate,  buildings,  machinery  and  equipment  at  Troy, 
Rochester  and  Corinth,  N.  Y.;  South  Norwalk,  Conn.,  and  Leominster, 
Mass.;  together  with  good  will,  patent  rights,  trade-name,  etc., 
$20,840,948.50.' 

"The  reasons  the  company  did  not  choose  to  itemize  separately 
its  very  important  item  of  'good  will'  are  left  to  inference.  Certainly 
there  is  nothing  about  it  to  be  ashamed  of,  for  it  indicates  an  able  and 
aggressive  management.  There  has,  however,  been  a  tendency  in 
Wall  Street  circles  to  criticise  recent  industrial  flotations,  where  the 
good  will  was  heavih'  capitalized,  such  as,  for  example,  the  $50,000,000 
of  good  will  in  the  Woolworth  Company,  and  the  $57,000,000  of  good 
will  in  the  B.  F.  Goodrich  companj'.  Bankers,  financiers  and  economists 
of  course  recognize  that  there  is  such  a  thing  as  good  will  and  that  it 
frequently  has  enormous  cash  value.  Yet  when  they  encounter  it  in 
a  balance  sheet,  their  disposition  is  to  'throw  it  out.'  Now  this  whole 
subject  interests  Printers'  Ink  constituency  intensely,  because  'good 
will'  is  the  accumulated  result  of  intelligent  advertising.  That  the 
Cluett,  Peabody  business  has  been  ably  advertised  is  sufficiently 
shown  by  the  impressive  figures  of  earnings  printed  at  the  head  of 
this  article.  The  direct  testimony  of  President  F.  F.  Peabody  on  this 
point,  will  be  generally  accepted  as  conservative  and  well  within  the 
tacts.    He  says: 

"  'The  "Arrow"  Brand  is  a  familiar  one  in  every  household; 
from  school  boy  and  college  man  to  elderly  men  in  every  profession. 
It  is  well  and  favorably  known,  because  of  the  enormous  amount  of 
money  that  has  been  expended  in  presenting  it  to  the  public  continu- 
ously for  the  past  sixteen  years.'  "  Printers'  Ink,  February  27,  1913, 
p.  96. 


280  MARKETING  PROBLEMS 

187.     Albatross  Paper  Company— Brand 
Development 

The  Albatross  Paper  Company  manufactures  bond 
paper  and  ledger  paper  on  a  large  scale.  Its  output  is 
sold  entirely  to  jobbers  who  in  turn  sell  to  printers  and 
other  users  of  this  kind  of  paper,  such  as  blank-book 
manufacturers.  Aboiut  40%  of  the  mill's  output  is 
sold  under  the  mill's  water  mark;  the  remainder  is  sold 
under  jobbers'  marks.  Altogether  several  hundred 
marks  are  placed  upon  the  paper  that  this  company 
manufactures. 

Each  jobber  may  use  several  marks  for  the  different 
grades  and  weights  of  paper.  The  paper  bearing  any 
one  mark  of  a  jobber  may  be  made  in  competing  mills. 
This  enables  a  jobber  to  secure  price  advantages,  even 
if  he  does  not  neglect  quality.  The  Albatross  Paper 
Company  sells  to  about  two  hundred  jobbers. 

From  the  production  standpoint  the  diversity  of 
marks  is  uneconomical.  While  the  dandy  rolls,  by 
means  of  which  the  water  mark  is  imprinted  in  the 
paper,  are  being  changed,  a  machine  cannot  produce 
salable  paper.  This  is  the  ''neck  of  the  bottle"  and 
slows  up  the  entire  plant.  For  each  mark  a  different 
dandy  roll  is  used. 

If  production  were  concentrated  on  the  mill's  own 
water  marks,  furthermore,  it  would  be  possible  to  secure 
longer  runs  on  a  few  sizes  and  weights.  The  jobbers' 
business  involves  not  only  different  marks,  but  also 
a  large  variety  of  sizes  and  weights  of  paper.  It  is 
estimated  that,  if  the  production  could  be  concen- 
trated on  the  mill's  own  marks,  there  would  be  a 
saving  of  at  least  10%  in  manufacturing  costs. 

The  Albatross  Paper  Company  thus  has  an  incentive 
from  the  production  standpoint  to  develop  its  own 
marks  more  extensively,  unless  the  obstacles  render 
such  a  policy  impractical. 

One  of  the  large  competitors  of  the  Albatross  Paper 
Company  is  the  Commodore  Manufacturing  Company-, 
which  produces  a  lower  grade  of  sulphite  bond.  The 
Commodore  Manufacturing  Company  has  established 
its  own  mark.    It  did  this  by  advertising  its  mark,  thus 


BRANDS,  TRADE  MARKS,  ADVERTISING     281 

gradually  building  up  a  demand  which  finally  sufficed 
to  cover  the  entire  output  of  the  company's  mill.  The 
Commodore  Manufacturing  Company  encountered 
serious  opposition  from  the  jobbers  when  it  eliminated 
jobbers'  marks.  Some  of  the  jobbers  at  first  refused  to 
sell  its  paper.  Now  its  output  is  distributed  entirely 
through  jobbers  without  any  system  of  exclusive 
agencies.  The  Commodore  Manufacturing  Company 
dominates  the  market  for  its  grade  of  bond  paper. 

Some  paper  mills  hitherto  have  undertaken  to  sell 
their  products  direct  to  wholesale  consumers.  Imme- 
diately all  the  paper  jobbers  in  the  United  States  have 
refused  to  handle  the  products  of  these  mills.  These 
experiments  have  indicated  that  it  is  not  profitable  to 
establish  wholesale  branches  to  sell  the  output  of  one 
paper  manufacturer.  Each  jobber  sells  all  kinds  of 
paper,  including  not  only  bond  and  ledger  paper,  but 
also  book  paper,  coated  paper,  wrapping  paper,  and 
numerous  other  varieties.  The  jobber's  gi'oss  profit  is 
20%  to  25%  of  his  selling  price.  The  jobber  carries  a 
stock  and  his  salesmen  cover  a  large  territory.  His 
expenses  are  so  high  that  there  is  no  reason  for  believing 
that  the  jobber  is  receiving  an  abnormally  large  net 
profit.  The  terms  on  which  paper  is  sold  by  the  mills 
to  the  jobbers  are  3%  thirty  days,  net  sixty  days. 

All  the  jobbers  have  their  own  marks  on  every 
grade  of  paper  that  they  sell.  The  largest  market  for 
paper,  such  as  the  Albatross  Paper  Company  manu- 
factures, is  in  the  large  cities,  but  substantial  quantities 
are  sold  in  the  smaller  cities  and  towns.  Consequently 
wide  distribution  is  essential. 

Most  of  the  competitors  of  the  Albatross  Paper 
Company  are  manufacturing  only  jobbers'  marks. 

The  Albatross  Paper  Company  has  been  adver- 
tising its  mark  in  the  Saturday  Evening  Post  and 
similar  mediums.  Its  sales  have  been  increasing 
gradually.  Until  recently  two  of  the  largest  jobbers 
in  the  United  States  have  refused  to  carry  the  Albatross 
mark.  At  the  present  time  only  one  jobber  in  a  town 
is  selling  paper  bearing  the  Albatross  mark.  Jobbers 
still  refuse  to  handle  it  unless  given  exclusive  agencies. 


282  MARKETING  PROBLEMS 

The  Albatross  Paper  Company  cannot  afford  to 
make  any  heavy  increase  in  its  advertising  appropria- 
tion at  the  present  time.  The  advertising  appropriation 
for  the  current  year  is  $250,000.  If  the  jobbers'  marks 
were  to  be  thrown  out  suddenly  by  the  Albatross 
Paper  Company,  the  company  would  not  be  able  to 
keep  its  plant  in  full  operation. 

Should  the  Albatross  Paper  Company  seek  to 
develop  further  its  own  marks?  If  it  is  to  develop  its 
own  marks,  what  policy  should  it  adopt  for  advertising 
and  distribution? 


188.    Saranac  Fountain  Pen  Company — Relation 
OF  Advertising  to  Sales 

The  Saranac  Fountain  Pen  Company  for  some 
years  specialized  in  the  production  of  fountain  pens  to 
be  sold  at  a  retail  price  of  $1.50.  These  pens  were 
widely  advertised,  and  the  price  was  a  conspicuous 
feature  of  all  the  advertising.  The  company  stated 
that  its  specialization  enabled  it  to  produce  a  pen  of 
good  quality  for  sale  at  this  price.  The  product,  there- 
fore, was  sold  on  price,  but  it  had  merit. 

Several  years  ago,  the  Saranac  Fountain  Pen  Com- 
pany decided  to  add  two  new  lines  of  pens,  of  better 
quahty,  to  be  sold  under  the  same  name.  The  prices 
for  these  new  grades  were  $2.50  and  $3.00. 

One  of  the  main  objects  of  the  company  in  offering 
these  new  grades  of  pens  was  to  secure  a  larger  volume 
of  business  for  their  salesmen.  About  one-half  of  the 
time  of  the  salesmen  was  spent  actually  in  selling  and 
the  remainder  in  traveling.  If  a  larger  volume  of 
orders  could  be  secured  during  the  time  that  the  men 


BRANDS,  TRADE-MARKS,  ADVERTISING    283 

were  engaged  actually  in  selling,  it  would  mean  a  sub- 
stantial reduction  in  salesforce  expense. 

When  these  new  grades  of  pens  were  offered,  they 
were  advertised  widely,  but  there  was  no  diminution 
in  the  advertising  of  the  pens  sold  at  SI. 50.  Retail 
dealers  placed  large  orders  for  the  S2.50  and  S3. 00 
grades  of  pens  during  the  first  year.  These  pens  sold 
slowly,  however,  in  the  retail  stores,  and  the  volume 
of  repeat  orders  during  the  next  two  years  was  small. 
No  complaints  of  any  consequence  were  reported  to 
the  company  from  the  trade.  Therefore,  the  company 
assumed  that  there  was  no  dissatisfaction  with  the 
quality  of  the  product. 

During  the  first  year  after  the  new  grades  of  pens 
were  offered  for  sale,  the  sales  of  the  SI. 50  pens  in- 
creased 30%;  in  the  second  year  these  sales  increased 
33%;  and  in  the  third  year  25%. 

What  probably  were  the  causes  that  produced  these 
results  in  the  sales  of  Saranac  pens? 


189.     CoHASSET  Manitfactubing  Company — 
Sales  Plan 

The  Cohasset  Manufacturing  Company  has  a  plant 
for  wood-working.  This  plant  is  located  in  a  manu- 
facturing city  in  Eastern  Massachusetts.  Inasmuch 
as  the  business  of  this  company  had  not  been  sufficiently 
profitable,  the  company  decided  in  December,  1919, 
to  undertake  the  manufacture  and  sale  of  a  new  class 
of  products.  These  products  were  porch  trellises,  gar- 
den trellises,  art  fences,  and  other  garden  specialties. 
The  company  intended  to  start  with  five  articles. 
These  include  three  sizes  of  garden  trellises  to  sell  at 
$5,  $10,  and  S15  each,  one  design  of  porch  trellis  to 
be  used  for  trailing  vines,  and  one  other  article.     All 


284  MARKETING  PROBLEMS 

these  articles  were  to  be  designed  with  a  view  to  beauty, 
to  be  built  of  high-grade  materials  with  first-class 
workmanship.  They  were  to  be  painted  with  the  best 
white  paint  available. 

The  Cohasset  Manufacturing  Company  proposed 
to  sell  these  articles  by  sending  solicitors  from  house 
to  house  to  canvass  for  orders.  The  company  was  of 
the  opinion  that  sales  could  be  made  most  effectively 
at  the  homes  of  the  potential  customers.  In  the  second 
season  the  company  planned  to  do  some  advertising, 
but  it  had  not  decided  at  the  outset  whether  to  use 
direct  mail  advertising  or  magazine  advertising. 

In  order  for  the  business  to  show  a  profit,  it  was 
estimated  that  it  would  be  necessary  to  sell  from  75  to 
100  articles  each  day.  It  was  estimated,  furthermore, 
that  this  would  require  from  ten  to  fifteen  solicitors. 
It  was  planned  to  pay  20%  commission  to  the  solicitors. 

The  company  was  small  and  the  proprietors  had  a 
good  understanding  of  all  wood-working  methods. 
They  had  a  railroad  siding  at  the  plant  and  a  good 
labor  supply. 

The  company  had  sufficient  capital,  in  December, 
1919,  to  obtain  the  necessary  machinery  and  to  furnish 
the  funds  for  purchasing  lumber  and  paying  operating 
expenses  for  perhaps  two  months,  beginning  manu- 
facturing operations  the  first  of  January.  The  capital 
was  not  sufficient  to  warrant  sending  out  salaried 
salesmen  without  guaranteed  sales.  The  capital  of 
the  company  would  have  been  seriously  depleted,  if  it 
had  sent  out  two  high-priced  salesmen  on  a  salary 
basis  who  were  not  successful  in  obtaining  orders. 

It  was  proposed  to  send  representatives  of  the 
company  into  a  town  to  solicit  orders  and  then  for 
towns  within  100  miles  of  the  plant  to  make  deliveries 
with  a  fight  truck.  To  towns  at  a  greater  distance,  it 
was  proposed  to  make  bulk  shipments  that  would  be 
distributed  by  a  truck  to  be  hired  in  the  town.  WTien- 
ever  only  a  few  sales  were  made  in  one  town,  individual 
shipments  were  to  be  made  direct  to  the  buyers.  A 
rigid  policy  was  to  be  established  for  collection  upon 
deliver^'. 


BRANDS,  TRADE-MARKS,  ADVERTISING    285 

The  president  of  the  company  stated:  "We  do  not 
feel  that  we  can  afford  advertising  the  first  year,  unless 
our  efforts  at  the  opening  of  the  season  meet  with 
enough  success  to  supply  the  necessary  funds.  In  this 
case  we  would  start  with  the  Saturday  Evening  Post, 
but  would  want  plenty  of  stock  on  hand  in  order  that 
we  might  not  lose  any  benefits  that  might  come  from 
our  advertising.  We  are  much  in  doulit,  however,  as 
to  whether  magazine  or  direct  mail  advertising  would 
be  our  best  medium." 

The  company  intended  to  produce  an  article  of 
high  merit.  The  price  charged  was  to  ho  sufficient  to 
permit  the  use  of  first-class  materials  and  first-quality 
w^orkmanship.  The  company  expected  that  its  manu- 
facturing and  delivery  costs  would  be  al^out  S3. 50  per 
article,  its  selling  cost  $3.00  per  article,  and  selling 
price  S15.00.  This  price  would  be  fully  as  low  or  lower 
than  the  price  for  which  the  same  article  could  be  made 
in  a  carpenter's  shop.  It  was  expected  that  the  sales 
would  be  made  chiefly  to  the  middle  and  wealthy  class 
of  customei's  who  could  afford  to  purchase  such  articles 
at  this  price.  As  an  accommodation,  the  compan}'  also 
planned  to  undertake  to  design  and  manufacture  special 
articles,  but  its  efforts  were  to  be  concentrated  mainly 
on  the  standardized  lines. 

Were  the  sales  plans  of  this  company  sound?  AMiat 
modifications,  if  any,  should  ha\'e  been  rcconuncnded? 


190.     Hematite  Conveyor  Company — Advertising 

Plans 

The  Hematite  Conveyor  Company  is  one  of  the 
large  manufacturers  of  hoists  and  conveyors  for  indus- 
trial and  mercantile  plants.    The  products  of  the  com- 


286  MARKETING  PROBLEMS 

pany  are  patented  and  are  adaptable  to  widely  varjnng 
requirements.  The  company  operates  fourteen  sales 
branches  and  service  stations.  The  service  department 
advises  prospective  customers  as  to  the  sort  of  equip- 
ment best  suited  to  their  individual  needs.  This  service 
department  is  under  the  sales  manager  and  works 
closely  with  the  salesforce. 

A  separate  advertising  department  has  not  been 
maintained.  For  traditional  reasons,  the  advertising 
is  in  charge  of  the  treasurer  of  the  company  whose 
other  duties  now  require  the  major  portion  of  his 
attention.  Consequently  the  advertising  of  the  Hema- 
tite Conveyor  Company  is  handled  spasmodically  and 
usually  by  subordinates  with  little  supervision.  At 
frequent  intervals,  for  example,  a  subordinate  employee 
is  told  to  send  out  a  circular  letter  to  a  list  of  2,000 
prospective  customers.  The  list  and  the  letter  when 
prepared  are  given  more  or  less  perfunctory  approval 
by  the  executive  in  charge. 

A  brief  investigation  by  an  outside  party  has  indi- 
cated that  the  funds  thus  spent  for  advertising  by 
this  company  are  yielding  almost  no  results.  What 
would  appear  to  be  the  most  practical  plan  for  reorgan- 
izing the  advertising  work  of  the  company?  Should 
an  a,dvertising  agency  be  employed?  What  are  the 
chief  points  to  be  provided  for  in  planning  a  systematic 
advertising  campaign  for  the  Hematite  Conveyor 
Company? 


191.    Susquehanna  Manufacturing  Company — 
Sales  and  Advertising  Plans 

The  Susquehanna  Manufacturing  Company  re- 
cently faced  the  problem  of  deciding  upon  the  retail 
outlets  for  a  new  product  and  the  effect  of  its  solution 
upon  the  advertising  pla'ns  of  the  company. 


BRANDS,  TRADE-MARKS,  ADVERTISING    287 

Up  to  the  time  that  this  problem  arose,  the  Susque- 
hanna Manufacturing  Company  had  been  manufactur- 
ing tools  and  similar  articles  sold  in  retail  hardware 
stores.  The  compajiy  had  a  well-established  sales 
organization  for  selling  direct  to  retailers.  The  prestige 
of  its  products  was  well  established  with  the  hardware 
trade. 

The  company  decided  to  add  a  line  of  safety  razors 
to  its  other  products.  The  question  then  arose  as  to 
whether  the  company  should  undertake  to  have  its 
brand  of  safety  razors  sold  through  retail  stores  out- 
side of  the  hardware  trade.  What  was  to  be  said  for 
and  against  a  policy  of  seeking  retail  outlets  other 
than  hardware  stores? 

The  products  that  the  company  had  previously 
manufactured  had  been  advertised  in  trade  papers  and 
by  means  of  displays  in  the  retail  stores  that  sold  these 
articles.  How  would  it  be  necessary  to  modify  the 
advertising  plans  of  the  company,  if  it  were  decided  to 
sell  the  safety  razors  through  new  retail  channels  as 
well  as  in  hardware  stores? 


192.     Plymouth  Dye  Company — Advertising 
Mediums 

The  Plymouth  Dye  Company  manufactures  soap 
dyes.  These  dyes  are  suitable  for  use  by  the  housewife 
in  her  home.  The  company  already  has  wide  distribu- 
tion of  its  product  through  unit  stores.  Its  advertising 
for  the  coming  season,  therefore,  is  to  be  aimed  at 
intensifying  the  demand  for  Plymouth  dyes  in  the 
national  market. 


288  MARKETING  PROBLEMS 

What  types  of  advertising  mediums  appear  to  be 
beet  suited  for  this  advertising  campaign? 


193.    Jackson  Manufacturing  Company — 
Advertising  Mediums 

The  Jackson  Manufacturing  Company  recently  has 
added  evaporated  milk  to  the  group  of  food  products 
that  the  company  manufactures.  The  evaporated  milk 
is  to  be  known  as  the  ''A]ax"  brand.  The  company 
seeks  national  distribution  for  this  new  product.  It  is 
to  be  distributed  through  wholesalers  to  unit  stores. 

What  types  of  advertising  mediums  are  likely  to 
prove  serviceable  in  the  campaign  of  this  company? 


194.    Petrel  Motor  Company — Advertising 
Mediums 

The  Petrel  Motor  Company  manufactures  detach- 
able motors  for  small  boats.  This  company  distributes 
its  motors  through  retail  stores  and  also  fills  mail  orders 
from  customers  who  cannot  obtain  the  motor  at  their 
local  stores. 

The  Petrel  motors  have  been  thoroughly  tested  and 
the  company  is  convinced  that  they  will  render  satis- 
factory service.  The  Petrel  Motor  Company  has  not 
advertised  extensively  heretofore.    The  company  has 


BRANDS,  TRADE-:MARKS,  ADVERTISING    289 

ample  financial  resources  for  an  advertising  campaign, 
a  good  salesforce,  and  its  factory  is  equipped  to  supply 
a  large  demand. 

What  types  of  advertising  mediums  should  be  given 
serious  consideration  in  planning-  the  advertising  cam- 
paign for  Petrel  motors? 


195.    RoBiNHOOD  Flour  Mills — Advertising 
Mediums 

Knox  &  Brown,  advertising  agents,  handle  the 
account  of  the  Robinhood  Flour  Mills.  In  order  to 
stimulate  a  demand  for  this  flour  in  Greater  Boston,  an 
investigation  was  made  of  the  distribution  of  the 
product  and  of  the  intensity  of  the  demand  in  all  parts 
of  the  city  and  in  its  suburbs.  With  the  exception  of 
one  district,  this  investigation  indicated  that  a  large 
portion  of  the  retail  grocery  stores  carried  Robinhood 
flour.  There  also  appeared  to  be  a  strong  demand  in 
all  sections,  with  this  one  exception,  where  a  substan- 
tial demand  might  be  expected.  The  district  that  was 
the  exception  was  in  a  residential  section  in  which  a 
large  number  of  apartment  houses  were  located.  In 
that  district  few  stores  had  Robinhood  flour  in  stock — 
chiefly,  they  stated,  because  they  received  few  orders 
for  it. 

What  form  of  advertising  probably  will  prove  to 
be  best  adapted  to  the  stimulation  of  the  demand  for 
Robinhood  flour  in  this  district? 


290  MARKETING  PROBLEMS 

196.   Chicopee  Hosiery  Company — Advertising 

Plan 
The  Chicopee  Hosiery  Company  received  the  follow- 
ing letter  from  the  Atlas  Sign  Company,  in  October, 
1919: 

October  10,  1919. 
Chicopee  Hosiery  Company, 

Boston,  Mass. 
Gentlemen: 

We  make  you  the  following  proposal  to  join  our  manu- 
facturers' Exclusive  Club  Plan  for  sign  distribution,  and 
your  acceptance  of  this  proposal  will  constitute  a  contract 
between  us,  as  follows: 

We  agree  to  place  a  force  of  high  grade  salesmen  upon 
the  road  to  cover  the  Eastern  and  Middle  Western  States 
as  agreed,  where  train,  trolley  and  population  makes  this 
plan  practical.  These  salesmen  will  represent  you  in  the 
capacity  of  specialty  advertising  representatives. 

You  are  to  furnish  us  with  a  list  of  your  agents  or  dealers 
throughout  the  country,  said  list  to  have  not  less  than  5,000 
names.  These  lists  are  to  be  made  out  by  states,  and  will 
be  treated  by  us  with  the  strictest  confidence  and  returned 
to  you  promptly  at  the  expiration  of  the  campaign.  We  will 
furnish  necessary  circulars  to  be  mailed  to  all  your  customers, 
and  pay  the  postage,  but  you  are  to  address  envelopes  to 
each  dealer  in  the  entire  Ust.  These  circulars  are  carefully 
prepared  and  explain  fully  to  your  dealer  the  plan  whereby 
he  can  obtain  splendid  advertising  returns  for  a  very  small 
outlay. 

You  are  also  to  secure  all  orders  possible  through  your 
own  salesmen  in  the  territory  not  covered  by  the  salesmen 
that  we  will  furnish. 

The  circulars  will  be  mailed  to  each  of  your  customers, 
not  to  exceed  20,000,  and  where  possible,  as  stated  above, 
will  be  followed  by  the  call  of  one  of  our  salesforce,  who  will 
take  orders  in  your  name  for  the  signs,  sending  the  original 
orders  to  you  daily  and  a  duplicate  copy  to  us  for  our 
information. 

The  sign  we  propose  to  furnish  is  made  from  either 
10x28,  12x24,  or  12x36  inch,  30  gauge  metal,  embossed,  six 
holes  punched,  varnished,  the  advertising  contained  thereon 
to  be  as  per  sketch  made  by  us  and  approved  by  you,  ample 
space  being  left  for  the  name  of  dealer  and  also  name  of 
town,  which  we  will  imprint  in  quantities  of  100  or  multiples 
thereof  as  ordered. 

This  club  will  be  made  up  of  five  or  more  lines  and  you 
will  be  the  only  firm  in  your  line.     Our  salesforce  are  rep^ 


BRANDS,  TRADE-MARKS7 ADVERTISING    291 

resenting  five  or  more  manufacturers  who  sell  to  different 
dealers  in  the  same  town  and  through  this  means  we  are 
enabled  to  make  this  offer. 

The  price  will  approximate  S17.50  per  hundred  signs. 
Actual  price  will  be  quoted  after  you  decide  on  size  of  sign 
and  design  or  trade-mark  desired.  The  price  will  vary  but 
little  from  the  approximated  $17.50  per  hundred. 

This  low  price  has  been  figured  upon  the  basis  of  securing 
orders  to  the  amount  of  at  least  30,000  signs.  Upon  the 
performance  by  you  of  the  conditions  herein  contained, 
however,  we  agree  (that  in  the  event  of  the  total  number  of 
orders  falling  short  of  this  mark)  not  to  charge  you  .more 
than  the  price  we  make  you  on  the  basis  of  our  selling 
30,000  signs.  At  the  close  of  the  campaign  you  agree  to 
place  an  order  with  us  for  the  actual  number  of  signs  for 
which  you  have  received  orders  from  your  dealers  and  no 
cancellations  can  be  accepted  after  the  campaign  is  closed 
and  this  order  has  been  placed  by  you. 

Terms  1%  ten  days,  net  30  days  from  date  of  invoice; 
shipments  F.O.B.  factory,  by  way  of  N.  Y.,  N.  H.  &  H.  R.  R. 
and  connecting  lines.  Claims  for  loss  in  transit  of  ship- 
ments, if  any,  to  be  made  by  you  direct  to  the  railroad  com- 
pany, our  responsibility  ceasing  on  receiving  receipt  from 
railroad  company  that  goods  are  received  in  good  condition. 

You  are  to  address  envelopes  and  prepare  in  triplicate 
a  list  of  the  orders  received  by  you  from  the  circulars,  from 
your  salesmen  and  from  our  salesforce  on  blanks  which  we 
will  furnish,  which  list  we  shall  use  in  manufacturing  the 
signs  for  your  customers.  You  are  to  pay  us  for  the  number 
of  signs  actually  sold  at  the  price  agreed.  Your  dealers  are 
to  remit  direct  to  you. 

As  we  herein  offer  you  the  exclusive  membership  in  j'our 
particular   line   to   this   club,   we   must   ask   your  definite 
acceptance  or  refusal  in  five  days  after  date  hereof. 
Yours  very  truly, 

(signed)     Atlas  Sign  Company. 

Should  the  proposal  have  been  accepted  by  the 
Chicopee  Hosiery  Company?  This  company  manu- 
factures medium  and  high-price  hosiery  for  men  and 
women.  It  employ's  salesmen  to  cover  department 
stores  and  wholesalers  in  the  cities  of  the  United 
States  with  100,000  population  and  over.  The  com- 
pany's salesmen  also  cover  wholesalers  in  smaller  cities. 
About  60%  of  the  product  of  the  Chicopee  Hosiery 
Company  is  sold  under  its  own  trade-mark,  which  Is 
advertised  in  magazines  of  national  circulation.  The 
remainder  of  the  product  is  sold  under  wholesalers' 


292  MARKETING  PROBLEMS 

and  retailers'  private  brands.  The  proportion  of  pri- 
vate brand  goods  manufactured  has  slowly  declined 
during  the  last  ten  years.  The  total  volume  of  sales 
of  the  company  has  shown  a  steady  increase. 


197.    Albemarle  Manufacturing  Company — 
Newspaper  Advertising 

The  Albemarle  Manufacturing  Company  makes  a 
variety  of  package  and  canned  food  products  which 
are  sold  directly  to  retailers.  The  advertising  cam- 
paigns of  the  company  are  planned  one  year  in  advance. 
Ordinarily  provision  is  made  for  featuring  one  article 
or  group  of  articles  each  month.  The  selection  of  the 
articles  to  be  featured  is  in  accordance  with  the  seasonal 
demand.  Through  the  Albemarle  house  organ  and  the 
instructions  that  are  issued  by  the  sales  manager,  the 
efforts  of  the'  salesmen  are  directed  each  month  toward 
the  articles  that  are  featured  in  the  advertising.  The 
other  articles  that  the  company  sells  are  not  to  be 
neglected  by  the  salesmen,  but  by  giving  special 
attention  to  the  articles  that  are  featured,  it  is  expected 
that  the  total  volume  of  sales  will  be  increased. 

Advertisements  are  placed  in  weekly  and  monthly 
magazines  of  national  circulation. 

For  what  specific  purposes  can  newspaper  adver- 
tisingi  be  used  advantageously  in  such  a  campaign  as 

^  Attainable  Ideals  in  Newspaper  Advertising,  published  by  O'Mara 
and  Ormsbee. 


BRANDS,  TRADE-MARKS,  ADVERTISING    293 

this?  What  type  of  newspaper  will  ordinarily  be  most 
serviceable?  Should  trade  papers  also  be  used  in  this 
campaign? 


198.  Belgrade  Hat  Company — Advertising  Plans 

The  Hunter  Advertising  Agency  has  obtained  as 
one  of  its  chents  the  Belgrade  Hat  Company.  The 
Belgrade  Hat  Company  manufactures  men's  hats  of 
high  quality.  The  new  plans  of  distribution  provide 
for  the  sale  of  its  product  under  the  Belgrade  brand, 
to  be  nationally  advertised.  A  system  of  exclusive 
agencies  in  the  retail  trade  is  to  be  established.  One  of 
the  provisions  of  the  agreement  with  the  exclusive 
agents  is  that  the  Belgrade  Hat  Company  will  pay 
one-half  the  cost  of  the  local  advertising  by  the  retail 
agents.  Assistance  is  to  be  rendered  to  the  local  agents 
in  planning  their  advertising.  Magazines  and  other 
mediums  are  to  be  used  in  the  national  advertising 
campaign. 

The  Belgrade  Hat  Company  has  an  advertising 
manager  who  is  to  furnish  a  point  of  contact  between 
his  company  and  the  advertising  agency.  The  adver- 
tising agency  is  to  formulate  the  advertising  plans. 
They  are  to  submit  the  plans  to  the  Belgrade  Hat 
Company  for  appro\'al.  The  advertising  agency  is 
also  to  prepare  the  copy  and  to  make  arrangements 
for  can'ying  out  the  plans,  such  as  making  contracts 
with  publishers  for  space. 

What  are  the  major  questions  that  the  advertising 
agency  must  decide  in  the  formulation  of  the  advertising 
plans  for  the  Belgrade  Hat  Company? 


294  MARKETING  PROBLEMS 

199.  Cuyahoga  Face  Brick  Company — Advertising 

Plans 

The  Cuyahoga  Face  Brick  Company  is  located  in 
Ohio.  Because  of  the  hmitations  imposed  by  freight 
rates,  90%  of  the  sales  of  this  company  are  made  within 
500  miles  of  its  plant. 

The  company  has  an  exhibit  room  in  which  a  com- 
plete set  of  panels  is  set  up  in  mortar  to  exhibit  the 
various  shades,  shapes,  and  sizes  of  face  brick  in  several 
color  combinations.  Salesmen  are  employed  to  call 
upon  contractors,  architects,  and  prospective  owners 
of  buildings  to  be  constructed.  In  the  exhibit  room 
prospective  builders  and  others  who  are  interested  have 
an  opportunity  to  formulate  an  opinion  as  to  the  use 
of  face  bricks. 

This  company  has  not  advertised  up  to  the  present 
time.  If  it  were  to  plan  an  advertising  campaign,  to 
whom  should  the  advertisements  be  directed? 


200.  Mayflower  Sugar  Refining  Company — 
Advertising  and  Price  Policies 

The  sales  manager  of  the  Mayflower  Sugar  Refining 
Company  made  the  following  announcement  to  the 
wholesale  and  jobbing  trade,  March  20,  1917: 

Believing  in  the  jobbers'  ability  to  distribute  sugar  to 
our  mutual  advantage,  we  desire  to  use  your  force  in  assist- 
ing us  in  placing  "Mayflower  Package  Sugar"  in  the  hands 
of  the  retail  trade.     We  are  not  doing  any  specialty  work 


BRANDS,  TRADE-MARKS,  ADVERTISING    295 


or  general  advertising,  so  that  in  return  for  this  effort  on 
your  part  we  are  prepared  to  make  you  a  certain  "advertising 
allowance."     This  we  enumerate  below: 


Com- 
petitors 
Differential 
Over  Bulk 


New 
Mayflower 
Differential 
Over  Bulk 


Majflower 
Advert'ng 
Allowance 


2  lb.  bags  (packed  in  sacks). . . 
2     lb.  bags  (packed  in  barrels) . 

2  lb.  cartons  (packed  GO  to  a 

case) 

3  K  lb.  bags  (packed  in  barrels 

only) 

3  y^  lb.  cartons  (packed  32  to  a 

case) 

5  lb.  bags  (packed  in  sacks) . . 
5  lb.  bags  (packed  in  barrels) . 
5     lb.  cartons  (packed  24  to  a 

case) 

10  lb.  bags  (packed  in  sacks) . . 
10  lb.  bags  (packed  in  barrels) . 
25  lb.  bags  (packed  4  to  a  sack) 
25     lb.  bags  (packed  in  barrels) 


40ft 
50  ft 


40  ft 
50  ft 

40f5 

50^ 


10^ 
lOff 

10^ 


40ft 

40ft 

15ft 

40  ft 

40ft 

10ft 

50ft 

50  ft 

lOft 

40  ft 

40ft 

15ft 

30ft 

30ft 

10ft 

40  ft 

40  ft 

10ft 

20ft 

20  ft 

5ft 

30  ft 

30  ft 

5ft 

You  will  see  that  the  proposal  is  to  list  our  package  sugar 
at  the  same  differential  over  bulk  as  competing  brands,  and 
to  credit  you  on  our  invoice  with  an  "advertising  allowance" 
as  a  direct  return  to  you  for  pushing  the  sale  of  our  package 
sugar  instead  of  our  spending  this  money  indirectly  through 
advertising. 

We  are  strongly  of  the  opinion  that  this  proposal  will 
work  to  our  mutual  advantage,  and  hope  to  have  your  full 
cooperation. 

What  factors  had  to  be  taken  into  account  by  the 
Mayflower  Sugar  Refining  Company  in  deciding  upon 
this  policy? 


T 


PART  VIII 

PRICE  POLICIES 

HE  following  problems  bring  out  the  principles 
of  price  determination  and  the  relation  of  price 
policies  to  other  sales  policies. 

201.  Pittsburgh  Basing  Point  System 

The  following  statements  summarize  the  .applica- 
tions and  answers  received  by  the  Federal  Trade  Com- 
mission concerning  the  so-called  Pittsburgh  Basing 
System  for  Steel.  ^ 

APPLICATION     OF     THE     WESTERN     ASSOCIATION     OF     ROLLED 
STEEL   CONSUMERS 

The  Western  Association  of  Rolled  Steel  Consumers, 
a  voluntary  association  with  headquarters  in  Chicago,  makes 
appUcation  to  the  Federal  Trade  Commission  to  institute 
a  proceeding  in  respect  to  the  violations  of  law  and  to  issue 
a  complaint  against  the  United  States  Steel  Corporation 
and  its  subsidiary  oorporations;  and  against  the  Inland  Steel 
Company,  of  Chicago;  the  Interstate  Iron  and  Steel  Com- 
pany, of  Chicago;  the  Steel  and  Tube  Company  of  America, 
Chicago;  on  the  grounds  of  unlawful  restraint  of  trade  and 
of  price  discrimination  contrary  to  the  provisions  of  the 
anti-trust  acts  and  of  unfair  competition  in  trade  against 
the  constituent  members  of  the  petitioners,  association  to 
the  injury  of  their  business  and  to  the  injury  of  other  steel 
fabricators  operating  in  that  part  of  the  United  States  that 
comprises  generally  the  Central  Western,  Northwestern  and 
Southwestern  states.  The  petitioner  association  is  composed 
of  upward  of  700  fabricators  of  steel  engaged  in  the  manu- 
facture and  sale  in  interstate  commerce  of  products  of 
which  rolled  steel  is  a  constituent  part. 

'  Federal  Trade  Commission:  Applications,  Answers,  and  State- 
ments Concerning  the  So-called  Pittsburgh  Basing  Point  for  Steel,  October 
15,  1919. 

A  brief  reference  to  methods  of  quotinp;  prices  of  pig  iron  is  givea 
in  Steel  and  Metal  Digest,  July  1918,  p.  413. 

297 


298  MARKETING  PROBLEMS 

The  United  States  Steel  Corporation,  respondent, 
through  the  subsidiary  companies  which  it  owns  and  con- 
trols, among  which  are  the  Illinois  Steel  Company  and  the 
Carnegie  Steel  Company,  is  engaged  in  the  production  and 
sale  in  interstate  commerce  of  rolled  iron  and  steel,  including 
plates,  shapes,  sheets,  and  bars,  and  other  products  of  their 
rolling  mills.  The  respondents  have  one  of  their  principal 
producing  plants  at  South  Chicago;  and  operate  other  plants 
at  Joliet,  Illinois;  at  Duluth,  Minnesota;  Milwaukee, 
Wisconsin;  Pittsburgh,  Pennsylvania;  and  elsewhere. 

The  rolled  steel  made  in  the  Chicago  district  by  the 
respondent,  United  States  Steel  Corporation,  through  its 
subsidiaries,  and  by  the  respondents.  Inland  Steel  Company 
at  Indiana  Harbor,  Indiana,  by  the  Interstate  Iron  and 
Steel  Company  at  East  Chicago,  Indiana,  and  the  Steel  and 
Tube  Company  at  Indiana  Harbor,  Indiana,  is  produced  at 
a  cost  substantially  lower  than  at  the  Carnegie  plant  of  the 
United  States  Steel  Corporation  at  Pittsburgh,  Pennsylvania, 
or  at  other  plants  at  Pittsburgh  or  at  other  places  east  of 
Gary  or  elsewhere  and  over  one-fifth  of  the  rolled  steel  made 
in  the  United  States  is  made  by  the  respondents  at  Gary, 
Indiana,  which  is  distant  not  more  than  thirty  miles  by 
rail  from  Chicago,  at  Joliet  which  is  about  forty  miles  from 
Chicago,  and  at  East  Chicago  and  Indiana  Harbor  which 
are  between  Chicago  and  Gary.  Pittsburgh,  Pennsylvania, 
is  distant  from  Chicago  substantially  500  miles.  The  lower 
cost  of  producing  at  Gary,  Chicago,  Joliet,  East  Chicago, 
and  Indiana  Harbor,  as  compared  with  the  cost  of  producing 
rolled  steel  at  Pittsburgh,  is  due  to  the  shortness  and  direct- 
ness of  the  all-water  transportation  of  ore  from  the  mines  of 
Minnesota  to  the  mills  in  the  Chicago  district  and  the 
proximity  of  these  mills  to  coal. 

It  is  stated  that  Gary,  Indiana,  is  the  second  largest 
producing  district  of  rolled  iron  and  steel  and  the  only  large 
producer  of  practically  the  entire  line  of  steel  products  out- 
side the  Pittsburgh  district.  The  Garj^  plant  of  the  United 
States  Steel  Corporation  was  constructed  in  1906  and  has 
since  been  enlarged.  It  has  a  favorable  location  for  the 
economical  production  of  rolled  steel.  It  is  stated  that  the 
plants  of  the  respondents  at  Gary,  Chicago,  Joliet,  East 
Chicago,  and  Indiana  Harbor  from  time  to  time  have  been 
rapidly  enlarged. 

In  1917,^  the  year  (for)  which  the  last  official  statistics 
were  accessible,  about  86  per  cent  of  the  entire  production 
of  iron  ore  came  from  the  Lake  Superior  district,  while  10 
per  cent  thereof  came  from  the  Birmingham  district,  23^ 
per  cent  from  the  three  States  of  Pennsylvania,  New  York, 
and  New  Jersey,  and  13^  per  cent  from  Colorado.      That 

'  Federal  Trade  Commission:  Applications,  etc.,  pp.  7-9. 


PRICE  POLICIES  '  299 

the  greatest  normal  growth  and  increase  in  iron  asid  steel 
production  under  peace  conditions  will  naturally  and  nor- 
mally be  in  and  about  Chicago,  where  the  great  plants  at 
Gary,  Chicago,  Joliet,  East  Chicago,  and  Indiana  Harbor 
are  located,  by  reason  of  the  cheaper  cost  of  production 
thereof  than  at  other  places;  and  that  the  principal  natural 
and  normal  growth  and  increase  of  the  consumption  and 
demand  of  iron  and  steel  and  their  products  now  is  and  will 
be  in  the  Middle  West  and  the  territory  tributary  to  the 
Chicago  district. 

The  applicant  submits  that  the  normal  and  reasonable 
price  for  rolled  steel  should  be  measured  by  the  cost  of 
production,  with  the  addition  of  a  reasonable  profit,  without 
the  addition  of  a  large  and  arbitrary  increase,  which  forms 
no  part  of  the  cost  of  production  and  is  over  and  above  such 
reasonable  profit.  The  district  and  territory  in  which  the- 
factories  of  the  members  of  the  applicant  association  are 
situated  is  tributary  to  the  location  of  the  mills  at  or  near 
Chicago,  where  rolled  iron  and  steel  are  produced  at  the 
lowest  cost  and  where  and  to  and  from  which  the  greatest 
and  the  shortest  facilities  for  transportation  from  mill  to 
consumer  are  and  will  continue  to  be  furnished. 

The  application  of  the  principle  of  price  fixing  at  cost 
plus  a  reasonable  profit  and  of  the  law  of  supply  and  demand 
requires  that  the  price  of  rolled  steel  in  the  Chicago  district 
should  be  as  low  as  and  not  greater  than  the  price  at  any 
other  point  or  in  any  other  district  in  the  United  States. 
The  fixing  of  any  higher  price  for  rolled  steel  produced  in 
that  district  is  arbitrary,  artificial,  unreasonable,  and 
uneconomical,  and  gives  to  the  respondent  producers 
excessive  and  unreasonable  profits. 

It  is  submitted  that  if  basing  points  are  economically 
sound,  then,  in  the  interest  of  the  trade — of  consumers  and 
producers  and  of  the  districts  or  sections  to  be  served  and 
affected — their  selection  should  take  into  view  their  situa- 
tion with  respect  to  cost  of  production,  supply,  and  proximity 
to  existing  and  growing  greater  demand  under  normal  and 
natural  conditions.  In  any  proper  consideration  of  the 
question,  the  applicant  maintains  that  if  a  basing  point  or 
basing  points  are  to  be  considered  as  proper  and  recognized, 
Chicago  best  answers  all  the  conditions  and  should  be  a 
basing  point. 

In  support  of  this  application,  your  petitioner  sets  forth 
the  following  facts  as  constituting  the  violations  of  law 
complained  of: 

1.  That  said  United  States  Steel  Corporation  and  its 
subsidiary  company,  the  Illinois  Steel  Company,  acting 
under  its  control  and  direction,  and  the  said  Inland  Steel 


300  MARKETING  PROBLEMS 

Company  and  the  Interstate  Iron  &  Steel  Company  and  the 
Steel  &  Tube  Company  of  America,  aforesaid,  upon  sales 
in  interstate  commerce  for  use,  consumption,  or  resale  within 
the  United  States,  are  and  since  on  or  about  the  1st  day  of 
July,  1918,  have  been,  charging  to  the  members  of  the 
petitioner  association  and  to  other  purchasers  in  the  States 
mentioned  in  paragraph  1  hereof,  for  rolled  steel  consisting 
of  iron  and  steel  plates,  shapes,  sheets,  and  bars,  and  other 
rolled-steel  products  of  their  respective  mills,  which  are  by 
them  rolled  and  manufactured  and  delivered  at  or  shipped 
from  their  said  respective  rolling  mills  situated  at  Gary, 
Indiana  Harbor,  and  East  Chicago,  Ind.,  and  Chicago 
Heights,  and  Johet,  111.,  at  a  price  which  is  fixed  by  adding 
to  the  proper  price  thereof  as  measured  by  the  cost  of  produc- 
tion plus  a  fair  and  reasonable  profit,  the  amount  of  the 
railroad  freight  charges  or  cost  of  transporting  such  commodi- 
ties from  Pittsburgh,  Pa.,  to  Chicago,  or  to  the  destination 
where  they  are  to  be  received  by  the  purchasers,  respectively, 
less  the  freight  charges  from  the  plants  of  such  producers  to 
such  destination,  as  if  such  commodities  were  in  fact  shipped 
from  Pittsburgh,  instead  of  being  shipped  from  their  respec- 
tive mills  at  Gary,  Chicago,  Indiana  Harbor,  East  Chicago, 
or  Joliet,  as  the  fact  is. 

In  other  words,  the  prices  of  such  commodities  are  in- 
creased by  large  fictitious  freight  rates,  which  amount  to 
$5.40  per  ton  or  thereabouts,  and  which  are  not  incurred  or 
paid  and  are  not  any  proper  element  or  part  of  the  price  of 
such  commodities,  but  are  an  arbitrary  and  excessive  and 
unreasonable  addition  thereto. 

2.  That  many  of  your  complainants,  members  of  the 
petitioner  association,  are  competitors  in  business  in  inter- 
state commerce  of  other  fabricators  in  what  is  known  as  the 
Pittsburgh  district  or  in  the  States  east  of  Indiana,  who  have 
been  during  the  same  period  and  are  also  purchasers  in 
interstate  commerce  from  respondents  of  like  commodities, 
and  to  such  competitiors  the  said  respondents  have  been 
and  are  selling  such  commodities  at  prices  substantially  less 
than  the  said  prices  by  them  exacted  from  and  paid  by  the 
members  of  the  applicant  association  as  aforesaid. 

3.  That  the  respondents  during  said  period  have  been 
and  are  selling  such  commodities  to  such  competitors  at 
Pittsburgh  and  in  the  Pittsburgh  district  of  the  complaining 
members  of  the  applicant  association  f.o.b.  Pittsburgh  and 
at  prices  less  by  the  amounts  of  the  ruling  freight  charges  on 
like  commodities  from  Pittsburgh  to  Chicago,  or  by  sub- 
stantially that  sum,  than  the  prices  so  made  to  the  members 
of  the  applicant  association  or  other  fabricators  or  con- 
sumers located  in  the  Chicago  district,  or  in  the  territory 


PRICE  POLICIES  301 

tributary  thereto,  for  like  commodities  produced  at  Gary, 
Chicago,  Joliet,  East  Chicago,  and  Indiana  Harbor. 


5.  That  the  effect  of  such  discrimination  in  price  is  to 
cause  to  and  impose  upon  the  respective  meml)ers  of  the 
appHcant  with  respect  to  sales  or  attempted  sales  by  them 
of  their  products  to  customers  in  the  Pittsburgh  district, 
or  in  the  territory  east  of  said  Chicago  district,  the  great 
cost  or  sum  amounting  to  such  fictitious  freight  rate  from 
Pittsburgh  to  Chicago,  in  addition  to  the  cost  of  transporta- 
tion of  their  own  product  from  their  mills  to  their  customers 
in  the  Pittsburgh  district  or  territory  east  of  Indiana,  and 
thereby  practically  to  exclude  them  from  such  trade  in  com- 
petition with  fabricators  located  in  said  Pittsburgh  or 
eastern  district  or  territory. 


9.  That'  to  meet  the  said  Pittsburgh  base  price  the 
respondents,  who  have  mills  in  the  Chicago  district,  make 
prices  and  sell  to  purchasers  in  the  Pittsburgh  district  or  in 
territory  between  the  east  line  of  Indiana  and  Pittsburgh, 
who  are  competitors  of  the  members  of  applicant,  at  prices 
of  the  Pittsburgh  mills  and  themselves  absorb  the  freight 
rate  from  their  mills  to  the  purchaser's  plant,  and  thus  dis- 
criminate in  price  to  the  amount  of  several  dollars  per  ton 
in  favor  of  such  competitors  and  against  applicant's  members. 

10.  That  the  respective  respondents  do  not  in  all  cases 
or  uniformly  maintain  or  charge  such  Pittsburgh  base  price 
but  have  practiced  and  made  and  do  make  other  discrimina- 
tions in  price  in  favor  of  certain  customers  in  the  Chicago 
district,  viz. : 

They  have  quoted  and  made  and  do  quote  and  make,  as 
applicant  is  informed  and  charges,  to  and  in  favor  of  all  or 
certain  agricultural  implement  manufacturers,  and  to  cer- 
tain other  consumers  and  purchasers  in  order  to  secure  orders, 
prices  f.o.b.  Chicago  or  f.o.b.  mill  for  such  rolled  steel,  which 
is  less  by  said  addition  of  S5.40  per  ton  or  ther(>abouts  than 
the  prices  exacted  from  the  members  of  thi^  applicant. 

They  have  quotetl  and  made  and  do  quote  and  make 
prices  to  railroad  companies  for  rails,  angle  bars,  splice  bars, 
and  tie  plates  f.o.b.  Chicago  or  Pittsburgh  or  f.o.b.  mill. 
They  quote  and  sell  basic  pig  iron  at  the  same  price  f.o.b. 
Chicago  and  f.o.b.  Pittsburgh. 

Applicant  admits  that  such  practices,  besides  constitut- 
ing discriminations  in  prices,  show  that  such  price  fixing 
f.o.b.  Pittsburgh  solely,  which  is  herein  complained  of,  has 
no  trade  or  economic  reason  or  basis. 

*  Federal  Trade  Commission:   Applications,  etc.,  p.  11. 


302  MARKETING  PROBLEMS 

11.  That  the  effect  of  the  discriminations  in  price  afore- 
said may  be  and  is  to  substantially  lessen  competition  and 
tends  to  create  a  monopoly  in  the  said  line  of  commerce. 

STATEMENT    OF   THE   APPLICANT,    THE    WESTERN  ASSOCIATION 
OF   ROLLED    STEEL    CONSUMERS* 

IV 

That  such  discrimination  in  price  of  rolled  steel  products 
produced  by  said  United  States  Steel  Corporation  and  its 
subsidiaries  has  been,  during  the  period  aforesaid,  made  and 
is  being  made  between  different  purchasers  of  commodities 
upon  sales  in  which  such  conmiodities  are  sold  and  purchased 
for  resale  within  the  United  States;  that  many  such  pur- 
chasers, who  are  members  of  the  petitioner  association,  are 
dealers  in  such  commodities,  and  purchased  the  same  from 
the  respondents  for  resale  within  the  United  States;  and 
that  the  effect  of  such  discrimination  has  been  and  is  to 
substantially  lessen  competition  in  that  line  of  com- 
merce between  such  dealers  and  purchasers  who  are  located 
at  Chicago  and  other  places  near  or  tributary  thereto  or  in 
the  Middle  West,  West,  and  Northwest  with  their  com- 
petitors who  are  situated  in  the  territory  east  of  Gary. 

V 

That  by  reason  of  such  discrimination  the  Chicago 
fabricators  and  dealers  in  rolled  steel  products  are  put  at 
a  disadvantage  as  compared  with  the  fabricators  and  dealers 
at  Pittsburgh  and  in  the  Pittsburgh  district  in  the  com- 
petition for  trade.  For  illustration,  at  each  of  the  following 
cities  of  Illinois  to  the  following  amounts: 

Amounts  per  cwt. 
(Cents) 

Streator  and  Peoria 7 

Bloomington,  Fulton,  Galesburg,  and  Quincy 6 

Springfield,  East  St.  Louis,  Centralia 5 

Cairo  and  Johnston  City 12 

As  to  the  district  east  of  Chicago  and  between  Chicago 
and  Pittsburgh:  The  Wisconsin  Bridge  &  Iron  Co.,  located 
at  Milwaukee,  Wis.,  85  miles  north  of  Chicago,  and  where 
the  United  States  Steel  Corporation  has  a  rolling  mill,  is  a 
fabricator  of  steel  and  a  member  of  petitioner  association 
and  is  a  competitor  of  a  Detroit  fabricator.  By  reason  of 
such  discrimination  the  Wisconsin  company,  although 
located  in  such  close  proximity  to  the  respondents'  rolling 
mills,  and  a  purchaser  of  steel  produced  at  such  mills,  is 
put  at  a  disadvantage  over  its  Detroit  competitor  in  business 
at  Detroit  of  $5  to  $6  per  ton;  and  this  is  true  with  reference 

*  Federal  Trade  Commission:  Applications,  etc.,  pp.  16-18. 


PRICE  POLICIES  303 

to  the  competitors  of  the  Wisconsin  company  in  Indiana, 
Illinois,  and  elsewhere. 

The  Kewanee  Boiler  Co.,  located  at  Kewanee,  111.,  by 
reason  of  such  discrimination,  is  not  only  put  at  such  a 
disadvantage  over  its  competitors  in  the  Pittsburgh  district 
in  the  competition  for  trade  at  points  east  of  Indiana  as  to 
substantially  put  it  out  of  the  competition,  but  at  points 
in  the  southwest,  such  as  Tulsa,  Okla.,  and  Dallas,  Tex., 
the  manufacturer  in  the  Pittsburgh  district,  although  several 
hundred  miles  more  distant,  can  make  delivery  in  Tulsa, 
Okla.,  or  Dallas,  Tex.,  within  a  cent  per  pound  of  what  it 
costs  the  Kewanee  company. 

McCord  &  Co.,  steel  founders  at  Chicago  and  a  member 
of  the  petitioner  association,  has  a  Pittsburgh  competitor, 
and  both  have  as  customers  for  the  trade  with  which  they 
are  competing  at  points  in  Pennsylvania  and  in  the  East. 

By  reason  of  which  discrimination  McCord  &  Co., 
although  it  gets  its  steel  from  the  Chicago  mills,  is  compelled 
to  face  a  handicap  of  substantially  $10.80  per  ton,  repre- 
sented by  the  freight  rate  from  Pittsburgh  to  Chicago  which 
is  not  earned,  plus  the  freight  upon  its  own  product  from 
Chicago  to  Pittsburgh,  which  is  earned.  Such  freight  from 
Pittsburgh  to  Chicago  which  is  not  earned  is  arbitrary  and 
forms  no  part  of  the  proper  price  for  the  steel.  On  the  other 
hand,  the  Pittsburgh  competitor  can  compete  with  the 
McCord  Co.  for  business  in  Chicago  and  the  West  without 
any  such  handicap  and  as  if  its  factory  or  mill  were  at 
Chicago  where  the  McCord  mill  is,  because  the  Pittsburgh 
competitor,  in  competing  for  business  at  Chicago  or  in  the 
Chicago  district,  purchases  his  steel  at  Pittsburgh  without 
having  to  pay  such  unearned  freight,  and  this  handicap  on 
the  McCord  Co.  enables  the  Pittsburgh  competitor  to 
compete  on  an  even  keel  in  Chicago  with  McCord. 

The  Evan  L.  Reed  Manufacturing  Co.,  and  a  member  of 
the  petitioner  association,  is  a  manufacturer  of  bolts  and 
rivets  at  Sterling,  111.,  and  by  reasons  of  such  discrimination 
is  compelled  to  pay  for  their  rolled  steel  products  at  Chicago 
such  price  increased,  as  aforesaid,  by  the  amount  of  the 
freight  rate  from  Pittsburgh  to  Chicago  as  if  they  bought 
their  steel  at  Pittsburgh.  A  competitor  bolt  and  rivet  con- 
cern in  Ohio,  more  than  300  miles  from  the  Chicago  district 
in  which  the  Reed  Co.  is  situated  and  trades,  can  by  reason 
of  such  discrimination  manufacture  and  deliver  in  the 
Chicago  district  its  product  at  less  than  the  Reed  Co.  can. 

The  Western  Wheeled  Scraper  Co.  and  a  member  of 
the  petitioner  association,  manufactures  in  Chicago  a  dump 
car  which  it  sells  in  competition  with  competitors  in  the 
Pittsburgh  district.  The  steel  in  each  car  costs  the  Western 
Co.  $54  more  than  it  costs  its  Pittsburgh  competitor.    The 


304  MARKETING  PROBLEMS 

Pittsburgh  competitor  can  ship  its  product — its  own  cars — 
on  their  own  wheels  to  Chicago  at  mileage  rates  amounting 
to  $32.69,  and  can  therefore  deliver  its  product  in  Chicago 
$21.31  per  car  cheaper  than  can  the  Western  Co.,  although 
the  Western  Co.  buys  its  steel  at  Chicago.  On  the  other 
hand,  the  Western  Co.,  in  order  to  compete  in  the  Pittsburgh 
district,  is  put  to  the  cost,  amounting  to  $86.69  more  than 
the  Pittsburgh  company. 

The  respondent.  Inland  Steel  Co.,  quoted  to  H.  C. 
Christman,  of  Detroit,  a  price  for  rolled  steel  of  S2.68  per 
hundredweight  f.o.b.  Detroit,  which  is  260  miles  from  the 
seller's  mill.  At  the  same  time  they  charged  and  exacted 
a  price  f.o.b.  Chicago  of  $2.72  per  hundredweight. 

What  is  above  alleged  as  specific,  concrete  illustrations 
applies  mutatis  mutandis  to  the  purchases  of  rolled  sheet 
products  and  the  trade  and  business  of  all  the  members  of 
the  applicant  association  as  against  and  in  favor  of  their 
competitors  in  the  Pittsburgh  or  eastern  district.  Like  and 
divers  other  and  different  discriminations  have  been  and 
are  being  made  by  respondents  in  sales  to  the  members  of 
applicant  association. 

By  reason  of  which  arbitrary  increase  of  price  by  adding 
to  the  fair  market  price  of  rolled  steel  purchased  by  the 
members  of  the  applicant  association  the  freight  rate  from 
Pittsburgh,  or  by  making  their  sales  on  the  f.o.b.  Pittsburgh 
basis  of  steel  manufactured  at  Gary,  Chicago,  or  in  that 
district,  such  members  are  unable  to  sell  their  product  manu- 
factured from  such  rolled  steel  in  competition  wdth  Pitts- 
burgh competitors  or  competitors  in  the  Pittsburgh  or 
eastern  district  in  the  territory  east  of  Gary,  Ind.,  although 
they  have  had  and  rightfully  should  be  permitted  to  have, 
and  but  for  such  discrimination  in  price  could  continue  to 
have,  a  large  and  profitable  trade  therein.  And  while  by 
such  practice  and  discrimination  in  price  such  members  of 
applicant  association  are  excluded  from  the  district  east  of 
Chicago  and  confined  to  their  own  district,  their  eastern 
competitors,  who  are  so  thereby  given  their  eastern  terri- 
tory exclusively,  are  also  placed  upon  an  equal  basis  with 
such  members  of  applicant  in  the  competition  for  trade  in 
their  own  Chicago  or  Middle  West  district. 

APPLICATION    OF   THE    SUPEEIOR   COMMERCIAL    CLUB 

Apphcation  made  on  behalf  of  the  commerce,  trade,  and 
financial  interests  of  the  citizens  in  the  city  of  Superior, 
Wisconsin,  and  others. 

4.  That^  for  a  number  of  years  last  past  the  United 
^  Federal  Trade  Commission:   Applications,  etc.,  pp.  24,  25. 


PRICE  POLICIES  305 

States  Steel  Corporation,  either  by  the  exercise  by  it  of  a 
monopolistic  control  of  the  steel  industry  or  by  united  action 
and  agreement  with  the  unknown  steel-manufacturing  com- 
panies above  referred  to,  commonly  designated  as  independ- 
ent steel  companies,  has  fixed  and  controlled  the  market  price 
of  steel  throughout  the  States  and  Territories  of  the  United 
States  of  America;  that  such  price  has  been  fixed,  during 
the  period  above  referred  to,  upon  what  is  known  and  com- 
monly designated  as  ''the  Pittsburgh  base";  that  the  pur- 
chasers of  steel  throughout  the  States  and  Territories  of  the 
United  States  are,  by  reason  of  the  fact  above  set  forth, 
obliged  to  pay  for  steel  purchased  by  them  the  market  price 
at  Pittsburgh,  Pa.,  plus  the  current  freight  charge  from 
Pittsburgh  to  the  point  of  delivery,  irrespective  of  the  actual 
shipping  point  of  the  goods  purchased;  for  example,  a  pur- 
chaser of  steel  at  Superior,  Wis.,  is  obliged  to  pay  for  steel 
shipped  and  delivered  from  Chicago,  111.,  or  Gary  (Ind.), 
in  Duluth,  Minn.,  the  market  price  at  Pittsburgh  plus  the 
current  freight  rate  from  Pittsburgh  to  Superior,  notwith- 
standing the  fact  that  the  steel  so  purchased  by  him  is  in 
fact  shipped  from  Chicago,  111.,  or  Gary  (Ind.),  in  Duluth, 
Minn.,  and  the  actual  cost  of  shipment  from  the  points  last 
named  is  considerably  less  than  tbe  cost  of  shipment  or 
freight  charged  from  Pittsburgh 

4:  *  Nc  *  * 

This  practice^  is  an  unjust  discrimination  against  the 
communities  located  in  the  Lake  Superior  district.  The 
Lake  Superior  district  has  the  richest  and  best  fields  of  iron 
ore  in  the  world.  It  has  unrivaled  transportation  facilities, 
both  by  water  and  by  rail.  Naturally  there  should  develop 
in  this  district  marvelous  industrial  activity,  especially  in 
the  fabrication  of  steel  and  iron  products,  but  fabricating 
plants  are  not  being  located.  When  we  inquire  the  reason, 
we  find  it  to  be  the  unjust  practice  involved  in  making  the 
Pittsburgh  district  the  sole  basing  point  for  steel  prices.  If 
this  were  done  away  with,  it  is  bcHevcd  that  a  fair  share  of 
fabricators  would  avail  themselves  of  the  various  advantages 
offered  at  the  head  of  Lake  Superior  and  would  locate  here. 
Now,  it  is  not  the  thought  of  the  Superior  Commercial  Club 
that  the  United  States  Government  should  extend  it  any 
special  aid  or  artificial  assistance  in  the  development  of  the 
city  of  Superior  and  the  surrounding  district.  The  people 
of  Superior  are  willing  to  stand  on  their  own  feet  and  take 
their  own  chances.  All  they  ask  of  the  United  States  Gov- 
ernment is  that  the  present  artificial  handicap  to  which  the 
head  of  the  lakes  is  at  the  present  time  illegally  subjected 
shall  be  removed. 

'  Federal  Trade  Commisjsion :  Applicalious,  etc.,  pp.  29-31. 


306  MARKETING  PROBLEMS 

In  answer  to  this  argument,  Judge  Gary,  the  chairman 
of  the  board  of  directors  of  the  United  States  Steel  Corpora- 
tion, takes  the  position  that  the  aboHtion  of  the  Pittsburgh 
base  is  not  feasible.  He  further  contends  that  the  estab- 
lishment of  a  mill  base  is  out  of  the  question.  To  be  more 
specific,  in  discussing  the  question  of  the  establishment  of 
a  base  for  the  plant  located  in  Duluth,  Minn.,  which  is  the 
feature  of  the  whole  case  that  is  of  vital  interest  to  the 
Superior  Commercial  Club,  Judge  Gary  intimated  in  his 
speech  made  in  Duluth  in  the  summer  of  1918  that  it  costs 
13  per  cent  more  to  manufacture  steel  in  Duluth  than  in 
Pittsburgh.  This,  he  intimated,  made  it  impossible  to 
estabUsh  a  base  at  Duluth.  The  inference  was  that  the 
Steel  Corporation  could  not  manufacture  steel  profitably 
in  Duluth  with  a  Duluth  base.  However,  no  proof  of  this 
was  offered.  The  Superior  Commercial  Club  certainly  does 
not  admit  that  it  costs  13  per  cent  more  to  manufacture  steel 
in  Duluth  than  it  does  to  manufacture  it  in  Pittsburgh,  but, 
for  the  sake  of  argument,  we  may  temporarily  assume  that 
it  does.  In  that  case  it  seems  clear  to  us  that  the  logical 
thing  to  do  would  be  to  charge  for  the  steel  manufactured 
at  Duluth  such  a  price  as  would  cover  the  cost  of  manufac- 
turing, plus  a  reasonable,  and  indeed  a  liberal,  profit.  Then 
if  the  steel  were  shipped  away  from  Duluth  the  actual  cost 
of  transporting  it  should  be  added.  But  we  can  never  admit 
that  such  transportation  cost  should  be  added  when  no 
service  of  transportation  is  actually  rendered. 

Now,  suppose  we  accept  Judge  Gary's  own  intimation 
in  regard  to  the  cost  of  manufacture,  what  do  we  find?  We 
find  that  in  normal  times  the  cost  of  manufacturing  rolled 
steel  does  not  exceed  $20  a  ton.  Now,  13  per  cent  of  $20  is 
$2.60.  Thus  it  would  seem  fair,  according  to  Judge  Gary's 
own  argument,  that  the  people  of  the  Duluth  district  should 
pay  $2.60  a  ton  more  for  their  steel  than  the  people  of  the 
Pittsburgh  district.  But  we  find,  as  a  matter  of  fact,  that 
the  steel  corporation  is  charging  the  people  of  the  Duluth 
district  $9.90  a  ton  more  than  it  is  charging  the  people  of 
the  Pittsburgh  district.  According  to  Judge  Gary's  own 
argument,  therefore,  the  people  of  the  Duluth  district  are 
being  overcharged  to  the  extent  of  $6.30  a  ton  at  the  present 
time. 

But  let  us  analyze  Judge  Gary's  argument  further.  He 
says  the  cost  of  manufacturing  steel  in  Duluth  is  13  per 
cent  greater  than  in  Pittsburgh,  38  per  cent  greater  than  in 
Gary,  Ind.,  and  39  per  cent  greater  than  in  Birmingham,  Ala. 
He  further  states  that  a  Duluth  base  cannot  be  established 
because  the  cost  of  manufacturing  in  Duluth  is  13  per  cent 
greater  than  in  Pittsburgh.  It  will  readily  be  seen  that  the 
judge  proves  too  much,  and  that  his  argimient  defeats  itself. 


PRICE  POLICIES  307 

According  to  his  own  statement,  the  cost  of  manufacturing 
in  Pittsburgh  is  about  25  per  cent  greater  than  in  Birming- 
ham or  Gary.  Now,  if  a  difference  of  25  per  cent  does  not 
interfere  with  the  establishment  of  a  Pittsburgh  base,  how 
can  a  difference  of  13  per  cent  between  Pittsburgh  and 
Duluth,  which  is  only  half  as  great  as  the  difference  between 
Birmingham  and  Pittsburgh,  prevent  the  establishment  of 
a  Duluth  base? 

But  while  the  people  who  listened  to  Judge  Gary  in 
Duluth  understood  him  to  say  that  the  cost  of  manufacturing 
in  Duluth  is  18  per  cent  greater  than  in  Pittsburgh,  the 
printed  pamphlet  which  he  later  issued  containing  his 
Duluth  address  indicates  that  his  Duluth  hearers  did  not 
exactly  understand  his  statement  in  regard  to  the  relative 
cost  of  manufacture  in  Pitts'burgh  and  Duluth.  The  printed 
report  of  the  speech  issued  by  the  judge  himself  states  that 
the  Duluth  plant  is  more  up  to  date  and  better  equipped 
than  the  Pittsburgh  plants,  and  therefore  more  efficient 
than  the  Pittsburgh  plants.  In  fact,  in  the  Duluth  address 
Judge  Gary  stated  that  the  Duluth  location  was  not  only 
the  most  beautiful,  but  also  the  most  practical  site  for  a 
steel  plant  of  any  in  the  world.  Then  Judge  Gary  stated 
that  it  would  cost  13  per  cent  more  to  manufacture  in  Duluth 
than  in  Pittsburgh  with  plants  of  equal  efficiency.  What 
the  actual  difference  in  cost  of  manufacturing  may  be  be- 
tween Duluth  and  Pittsburgh,  the  printed  report  of  Judge 
Gary's  address  leaves  us  to  conjecture,  and  it  is  the  opinion 
of  the  Superior  Commercial  Club  that  the  cost  of  manu- 
facturing steel  in  Duluth  should  be  less  than  it  is  in  Pitts- 
burgh. The  reasons  for  this  opinion  may  be  stated  briefly  as 
follows : — 

To  manufacture  a  ton  of  the  ordinary  rolled  steel  required 
2  tons  of  50  per  cent  iron  ore  £ind  IJ^  tons  of  coal.  In  ordi- 
nary times  the  cost  of  transporting  the  iron  ore  from  Duluth 
or  Superior  to  the  Lake  Erie  ports  is  approximately  60  cents 
a  ton.  On  the  other  hand,  the  cost  of  transporting  a  ton  of 
coal  from  the  Lake  P>ic  ports  to  Duluth  is  in  ordinary  times 
approximately  30  cents  a  ton.  It  must  be  borne  in  mind 
that  the  ore  for  the  Pittsburgh  mills  has  to  be  transported 
from  Duluth  or  Superior  to  the  Lake  Erie  ports,  while  the 
coal  used  in  smelting  at  Duluth  has  to  be  transported  from 
the  Lake  Erie  ports  to  Duluth.  It  will  thus  be  seen  that  the 
Pittsburgh  steel  involves  the  transportation  cost  for  the  ore 
of  $1.27.  At  the  same  time  Duluth  steel  involves  a  trans- 
portation cost  for  the  coal  of  not  over  40  cents.  Roughly, 
we  find  a  saving  here  in  favor  of  Duluth  steel  of  80  cents  on 
every  ton  of  steel  maiuifactured.  The  other  item  of  im- 
portance used  in  the  manufacture  of  steel  is  limestone,  and 
we  are  reliably  informed  that  the  cost  of  transporting  the 


308  MARKETING  PROBLEMS 

limestone  to  Duluth  is  no  greater  than  is  the  cost  of  trans- 
porting it  to  the  Pittsburgh  district.  Thus  far  we  find  that 
the  conditions  favor  Duluth.  Another  important  element  in 
the  cost  of  manufacture  is  labor.  It  is  stated  by  Mr.  R.  T. 
Kirkham,  of  Superior,  that  chmatic  conditions  at  the  head 
of  Lake  Superior  are  such  that  labor  employed  in  steel 
plants  is,  on  the  average,  at  least  10  per  cent  more  efficient 
than  it  is  in  the  Pittsburgh  district.  We  know,  furthermore, 
gentlemen  employed  by  the  United  Steel  Corporation  have 
stated  that  living  conditions  in  Duluth  and  Superior  are 
such  that  labor  employed  at  the  Duluth  plant  is  more  con- 
tented than  is  the  corresponding  labor  employed  in  the 
Pittsburgh  district.  This  leaves  as  the  only  other  item  for 
us  to  consider  the  relative  efficiency  of  the  Duluth  and 
Pittsburgh  plants,  and  upon  this  we  have  the  testimony  of 
Judge  Gary  himself,  who  has  stated  publicly  that  the  Duluth 
plant  is  more  modern  and  more  efficient  than  the  Pittsburgh 
plants. 

Applications  also  were  submitted  by  the  State  of 
Minnesota  and  by  The  Joint  Committee  of  Civic 
Organizations  of  Duluth. 

APPLICATION   OF  THE  SOUTHERN  ASSOCIATION  OP 
STEEL    FABRICATORS^ 

1.  The  Southern  Association  of  Steel  Fabricators  is  a 
voluntary  association  of  fabricators  of  steel,  whose  address 
is  87^  South  Forsyth  Street,  Atlanta,  Ga. 

2.  This  application  is  for  a  complaint  to  be  issued  by 
this  Commission  against  the  following  parties:  The  United 
States  Steel  Corporation,  71  Broadway,  New  York  City; 
The  Tennessee  Coal,  Iron  and  Railroad  Co.,  Birmingham, 
Ala.;  The  Republic  Iron  and  Steel  Co.,  Birmingham,  Ala.; 
The  Gulf  States  Steel  Co.,  Birmingham,  Ala.,  The  Knoxville 
Iron  Co.,  Knoxville,  Tenn.;  and  all  other  steel  producers 
situated  or  engaged  in  interstate  commerce,  in  the  South- 
eastern States. 

5.  The  respondents  herein  have  been  and  now  are 
engaged  in  the  production  and  sale  in  interstate  commerce 
of  rolled,  semifinished,  and  finished  steel,  including  plates, 
shapes,  sheets,  bars,  wire,  cotton  ties,  barrel  hoops,  and  other 
products.  The  applicant  submits  that  the  normal  and 
reasonable  price  of  such  products  should  include  the  cost 
of  production,  with  the  addition  of  a  reasonable  profit,  but 
without  the  addition  of  a  large  and  arbitrary  increase  under 
the  guise  of  a  fictitious  freight  rate  or  otherwise. 

^  Federal  Trade  Commission:  Applications,  etc.,  pp.  52-54. 


PRICE  POLICIES  309 

6.  The  three  basic  elements  in  the  production  of  iron 
and  steel  are  iron  ore,  coal,  and  limestone.  All  three  of 
these  elements  are  found  together  in  the  Birmingham  dis- 
trict, a  condition  making  for  low  cost  production  which 
exists  nowhere  else  in  the  United  States.  The  respondents 
situated  in  the  Birmingham  district  can  and  do  produce 
steel  and  iron  as  cheaply  as  the  producers  in  Pittsburgh 
district  or  elsewhere.  If  basing  points  are  sound  and  are  to 
be  continued,  then  Birmingham  has  the  same  right  to  be 
named  a  basing  point  as  has  Pittsburgh,  and  the  prices 
charged  throughout  the  South  should  include  only  the 
freight  rate  from  Birmingham  and  not  the  freight  rate  from 
Pittsburgh. 

7.  The  southern  territory  in  which  the  factories  of  the 
members  of  the  applicant's  association  are  situated  is  tribu- 
tary to  the  mills  located  at  and  near  Birmingham.  Yet  the 
respondents  and  all  other  steel  producers  engaged  in  inter- 
state commerce,  no  matter  where  located,  sell  their  products 
for  the  Pittsburgh  base  price  plus  the  amount  of  the  freight 
from  Pittsburgh  to  the  purchaser.  The  basis  of  charge  is 
the  same,  regardless  of  the  location  of  the  purchaser;  in 
other  words,  the  price  of  steel  is  increased  by  a  large  fictitious 
freight  rate  which  is  not  incurred  or  paid  and  is  not  a  proper 
element  in  the  price  of  the  commodity. 

8.  By  reason  of  this,  competition  in  steel  is  not  only 
lessened,  but  stifled,  the  cost  of  steel  is  increased  by  an 
arbitrary  and  unwarranted  amount,  and  buyers  and  manu- 
facturers situated  in  and  near  Pittsburgh  receive  preference 
and  protection  and  those  farther  away  are  discriminated 
against  unfairly  and  unreasonably. 

9.  To  demonstrate  the  stifling  competition,  applicant 
shows  that  the  gross  price  to  purchasers  of  steel  is  exactly 
the  same,  whether  petitioners  buy  in  Pittsburgh,  in  Chicago, 
in  Birmingham,  or  any  other  place. 

10.  By  way  of  illustrating  the  arbitrary  and  unreason- 
able increase,  applicant  shows  that  on  certain  grades  of 
steel  the  freight  rate  from  Pittsburgh  to  Atlanta  is  50  cents 
per  100  pounds,  while  from  Birmingham  to  Atlanta  it  is 
only  19  cents.  This  difference  of  31  cents  in  freight,  or  $G.20 
per  ton,  is  arbitrarily'-  added  to  the  price  of  shipments  from 
Birmingham  and  is  pocketed  by  the  Birmingham  producers. 
On  many  grades  of  steel  the  amount  so  pocketed  is  much 
larger. 

11.  By  way  of  illustrating  the  discrimination,  applicant 
shows  that  some  of  the  largest  and  strongest  competitors  of 
the  manufacturers  belonging  to  applicant's  association  are 
situated  in  Pennsylvania,  Ohio,  Indiana,  Kentucky,  and 
other  states  close  to  Pittsburgh.  The  freight  rates  from 
Pittsburgh  to  the  points  in  the  states  named  are  much  lower 


310  MARKETING  PROBLEMS 

than  the  freight  rate  from  Pittsburgh  to  Atlanta,  though  it 
is  not  as  low  as  the  freight  rate  from  Birmingham  to  Atlanta. 
Applicant's  members,  however,  are  compelled  to  pay  the 
freight  rate,  Pittsburgh-Atlanta,  on  steel  produced  in  Birm- 
ingham, while  their  competitors  are  paying  the  lower  rate 
charged  from  Pittsburgh  to  their  plants.  This  discrimination 
in  price  is  substantial  and  seriously  hampers  the  business  of 
the  manufacturers  of  the  Southeast.  It  excludes  entirely  the 
southeastern  manufacturers  from  some  markets  which  they 
could  otherwise  reach,  and  it  amounts  to  an  arbitrary  and 
unreasonable  preference  and  protection  gi  /en  to  the  regions 
closer  to  Pittsburgh  at  the  expense  of  the  rest  of  the  country, 
and  more  especially  at  the  expense  of  the  Southeast. 


Wherefore,  applicant  respectfully  asks  that  this  Com- 
mission investigate  the  matter  complained  of,  and  if  upon 
investigation  the  Commission  has  reason  to  believe  there  is  a 
violation  of  which  the  Commission  has  jurisdiction,  that  a 
complaint  be  issued  against  respondents,  and  such  further 
proceedings  be  had  as  to  the  Commission  may  seem  meet 
and  proper. 

APPLICATION  OF  THE  BIRMINGHAM  CIVIC  ASSOCIATION 


AND   THE   BIRMINGHAM   STEEL   BASE   BUREAU 


The  Birmingham  Civic  Association  and  the  Birmingham 
Steel  Base  Bureau  respectfully  make  application  to  the 
Federal  Trade  Commission  to  institute  a  proceeding  upon 
the  allegations  hereinafter  made  and  to  issue  a  complaint 
directed  against  the  United  States  Steel  Corporation  and  its 
subsidiary  corporations,  viz.:  the  Tennessee  Coal,  Iron  and 
Railroad  Co.  and  the  American  Steel  and  Wire  Co.,  and 
against  the  Gulf  States  Steel  Co.,  on  the  grounds  of  unlawful 
restraint  of  trade  and  of  price  discrimination. 


The  steel  billets  and  rolled  steel  including  the  various 
forms  of  wire  material  made  in  the  Birmingham  district  by 
the  respondent  United  States  Steel  Corporation  and  through 
its  said  subsidiary  at  the  plants  in  Ensley,  Bessemer,  and 
Fairfield,  Ala.,  are  produced  at  a  materially  lower  cost  than 
the  like  products  are  produced  by  its  other  subsidiary  com- 
panies and  by  the  so-called  independent  steel  companies  in 
the  Pittsburgh  or  eastern  districts.  The  said  plants  at 
Ensley,  Bessemer,  and  Fairfield,  Ala.,  are  situated,  respec- 
tively, about  6,  11,  and  5  miles  from  the  center  of  the  city 
of  Birmingham,  and  that  among  the  factors  making  for 
the  said  lower  cost  of  steel  production  in  said  Birmingham 

^  Federal  Trade  Commission:  ApplicatioTis,  etc.,  pp.  55-57;  61-62. 


PRICE  POLICIES  311 

district  is  the  proximity  of  the  iron  ores,  coal,  and  limestone, 
the  three  essential  raw  materials,  all  of  which  are  within  a 
radius  of  not  exceeding  25  miles  of  one  another  and  in  most 
instances  much  nearer  together  in  said  district. 

Steel  production  in  said  Birmingham  district  and  at 
Alabama  City,  Ala.,  has  been  on  the  increase  during  several 
years  past,  and  recent  demand  has  caused  the  construction 
at  Fairfield,  Ala.,  of  a  large  rolling  mill,  a  large  blooming 
mill,  and  a  large  fabricating  plant  by  the  United  States 
Steel  Corporation  through  the  subsidiary,  the  Tennessee 
Coal,  Iron  and  Railroad  Co.,  this  in  addition  to  the  facilities 
of  the  same  corporation  consecutively  built  by  it  at  Ensley 
and  Bessemer  in  the  form  of  a  modern  steel  production  plant 
and  rail  mill  at  Ensley  and  a  rolling  mill  at  Bessemer.  The 
said  plants  at  Fairfield  have  been  completed  during  the 
year  1919. 

*  *  *  *  * 

Applicants  are  informed  and  believe  and  therefore  state 
that  the  United  States  Steel  Corporation,  through  its  sub- 
sidiary, the  Tennessee  Coal,  Iron  and  Railroad  Co.,  owns 
and  controls  upward  of  700,000,000  tons  of  iron  ore  and 
2,000,000,000  tons  of  coal,  situated  practically  all  in  what 
is  known  as  the  Birmingham  district;  that  approximately 
one-half  of  said  coal  supply  is  of  a  superior  coking  quality; 
and  said  iron  ore  is  largely  of  a  self-fluxing  quality,  analyzing 
approximately  38  per  cent  metallic  iron,  and  said  ore  is  well 
suited  to  the  manufacture  of  basic  pig  iron  for  use  in  the 
production  of  basic  open-hearth  steel. 

If  the  principle  is  accepted  of  fixing  the  price  of  rolled 
steel  in  accordance  with  the  law  of  supply  and  demand  and 
by  determining  the  cost  plus  a  reasonable  profit,  then  the 
price  of  rolled  steel  and  billets  f.  o.  b.  mills  in  the  Birming- 
ham district  should  be  as  low  and  not  higher  than  the  price 
at  mills  in  any  other  district  in  the  United  States. 


9.  To  meet  the  said  Pittsburgh  base  price,  the  respond- 
ents w'ho  have  mills  in  the  Birmingham  district  make  prices 
and  sell  to  purchasers  in  the  Pittsburgh  district  or  in  territory 
nearer  Pittsburgh  than  Birmingham,  who  are  competitors 
of  fabricator  members  of  applicants,  at  prices  of  the  Pitts- 
burgh mills  and  themselves  absorb  the  freight  rates  from 
their  mills  to  the  purchasers'  plants,  and  thus  discriminate 
in  price  to  the  amount  of  several  dollars  per  net  ton  in  favor 
of  such  competitors  and  against  applicants'  said  members. 

10.  The  respondents  having  mills  at  Fairfield,  Ensley, 
and  Bessemer  do  not  in  all  cases  or  uniformly  maintain  or 
charge  such  Pittsburgh  base  price,  but  have  practiced  and 
made  and  do  make  other  discriminations  in  price  in  favor 


312  MARKETING  PROBLEMS 

of  certain  customers  in  the  Birmingham  district,  viz.: 
They  have  quoted  and  made  and  do  quote  and  make  prices 
to  railroad  companies  for  rails,  angle  bars,  and  tie  plates  and 
other  steel  railroad  equipment  f.  o.  b.  Birmingham  or  Pitts- 
burgh or  f.  o.  b.  mill.  The  said  Tennessee  Coal,  Iron  and 
Railroad  Co.  quotes  and  sells  pig  iron  at  practically  the  same 
price  f.  o.  b.  Birmingham  and  Pittsburgh.  And  applicants 
submit  that  such  practices,  besides  constituting  discrimina- 
tions in  price,  as  aforesaid,  show  that  such  price  fixing  f.  o.  b. 
Pittsburgh  solely  has  no  trade  or  economic  foundation. 

ANSWER   OF   THE    UNITED    STATES    STEEL   CORF  ORATION^ 

The  United  States  Steel  Corporation,  Carnegie  Steel  Co., 
Illinois  Steel  Co.,  and  Minnesota  Steel  Co.,  appearing  by 
leave  of  the  Federal  Trade  Commission,  and  responding  to 
the  application  of  the  Western  Association  of  Rolled  Steel 
Consumers  for  a  complaint  against  them  and  others,  say: — 

1.  Respondent,  United  States  Steel  Corporation,  is  not 
now  and  never  has  been  engaged  in  the  production  or  sale 
of  rolled  iron  and  steel  at  Gary,  in  the  State  of  Indiana,  or 
South  Chicago  or  Joliet,  in  the  State  of  Illinois;  or  Milwau- 
kee, in  the  State  of  Wisconsin;  or  Duluth,  in  the  State  of 
Minnesota;  or  Pittsburgh,  in  the  State  of  Pennsylvania ;  or 
elsewhere,  as  stated  in  said  application.  United  States  Steel 
Corporation  owns  substantially  all  the  stock  of  the  Carnegie 
Steel  Co.,  which  produces  and  sells  rolled  iron  and  steel  and 
other  iron  and  steel  products  at  Pittsburgh;  substantially 
all  the  stock  of  the  Illinois  Steel  Co.,  which  produces  and 
sells  rolled  iron  and  steel  and  other  iron  and  steel  products 
at  Joilet,  South  Chicago,  Gary,  and  Milwaukee;  and  sub- 
stantially all  the  stock  of  the  Federal  Steel  Co.,  whose 
subsidiary,  the  Minnesota  Steel  Co.,  manufactures  and  sells 
rolled  iron  and  steel  and  other  iron  and  steel  products  at 
Duluth.  United  States  Steel  Corporation  sustains  no  rela- 
tion to  any  of  said  companies  except  as  stockholder  as 
aforesaid,  although  it  does  from  time  to  time  make  recom- 
mendations to  said  manufacturing  companies  with  respect 
to  the  conduct  of  their  several  businesses  and  exercises  such 
control  over  them  as  is  incident  to  such  stock  ownership. 

2.  Respondents,  Illinois  Steel  Co.  and  Minnesota  Steel 
Co.,  generally  sell  their  products  of  iron  and  steel  at  the 
prices  charged  for  similar  products  in  the  Pittsburgh  dis- 
trict for  delivery  at  the  Pittsburgh  mills,  plus  an  amount 
equal  to  the  freight  on  such  products  from  Pittsburgh  to 
the  point  of  destination.  This  is  the  practice  of  steel  manu- 
facturers generally.  The  prices  so  charged  are  not  arbitrary 
nor  are  they  the  result  of  any  agreement  or  understanding 
between  producers.     On  the  contrary,  they  are  fixed  and 

^  Federal  Trade  Commission:  Applications,  etc.,  pp.  64-67. 


PRICE  POLICIES  313 

controlled  by  the  law  of  supply  and  demand  and  are  the 
market  prices  prevailing  in  the  territory  served  at  the  time 
of  service.  Said  practice  had  its  inception  at  the  beginning 
of  the  steel  industry  in  this  country.  At  that  time  nearly 
all  the  iron  and  steel  produced  in  the  United  States  was 
manufactured  in  the  Pittsburgh  district  and  the  Pittsburgh 
mills  controlled  the  price  as  a  matter  of  course.  Since  that 
time  many  mills  have  been  established  in  different  parts  of 
the  country  outside  of  the  Pittsburgh  district,  largely  in 
what  is  known  as  the  Chicago  district.  Such  mills,  however, 
have  never  been  able  to  supply  the  requirements  of  the 
territory  tributary  thereto,  the  major  part  thereof  having 
always  been  supplied  by  the  Pittsburgh  mills.  As  a  con- 
sequence consumers  within  such  territory  have  been  obliged 
to  depend  upon  the  manufacturers  in  the  Pittsburgh  clis- 
trict  for  the  larger  part  of  their  supplies,  and  for  this  reason 
the  practice  of  selling  at  the  prices  charged  by  the  Pittsburgh 
manufacturers  plus  freight  from  Pittsburgh  has  been 
continued  down  to  the  present  time. 

3.  The  practice  of  selling  at  the  Pittsburgh  base  price, 
plus  freight  has  not,  however,  been  adhered  to  at  all  times  or 
under  all  circumstances.  When  the  demand  has  equaled  or 
exceeded  the  supply  it  has  generally  been  followed,  but  when 
the  demand  has  lessened  and  the  supply  has  materially 
exceeded  the  demand,  and  particularly  when  the  production 
in  the  districts  outside  of  Pittsburgh  has  equaled  or  exceeded 
the  requirements  of  such  districts,  little  attention  has  been 
paid  to  the  Pittsburgh  price,  and  the  freight  charged  from 
Pittsburgh  has  either  been  omitted  altogether  or  greatly 
reduced,  following  again  the  law  of  supply  and  demand  in 
the  territory  served. 

4.  The  practice  above  described  long  since  became  and 
still  remains  a  settled  custom  in  the  trade.  The  business  of 
producers  and  consumers  have  been  arranged,  manufacturing 
and  fabricating  plants  have  been  located,  and  vast  invest- 
ments of  capital  have  been  made  in  reliance  upon  it.  To 
change  such  practice  by  order  of  the  Commission  or  in  any 
other  way  than  by  the  ordinary  processes  of  trade  would 
create  great  confusion  in  the  industry  and  cause  incalculable 
loss  to  a  large  numl)er  of  concerns  engaged  in  the  business, 
and,  respondents  submit,  should  not  be  attempted. 

5.  Respondents  further  submit  that  the  determination 
as  to  whether  Chicago  shall  be  a  basing  point  in  fixing  the 
manufacturers'  price  for  iron  and  steel  would  necessarily 
involve  the  determination  of  the  price  at  which  such  manu- 
facturers shall  sell  their  products,  and  that  such  determina- 
tion is  beyond  the  powers  conferred  upon  the  Federal  Trade 
Commission  by  law.  To  merely  order  that  the  Chicago 
manufacturers  shall  sell  such  materials  as  they  manufacture 


314  MARKETING  PROBLEMS 

at  a  Chicago  base  price,  without  fixing  such  price,  would  but 
require  a  change  in  the  name  by  which  the  transaction  is 
described  without  affecting  in  any  way  the  substance  thereof. 

6.  Respondents  further  submit  that  Chicago  could  not 
properly  be  made  a  basing  point  for  the  sale  of  iron  and  steel 
under  present  conditions.  Pittsburgh  is  and  will  continue 
to  be  the  basing  point  for  such  products  in  the  sense  that  it 
controls  and  will  continue  to  control  the  price  of  iron  and 
steel  throughout  the  country  so  long  as  the  country  is 
dependent  upon  it  for  a  substantial  portion  of  its  supply. 
It  may  be,  as  claimed  in  said  application,  that  the  greatest 
normal  growth  and  increase  in  iron  and  steel  production 
under  peace  conditions  will  naturally  and  normally  be  in 
and  about  Chicago,  and  it  may  be  that  at  some  future  time 
the  Chicago  district  will  lead  in  the  production  of  iron  and 
steel  in  this  countr5\  When  that  time  arrives,  if  it  ever 
does  arrive,  the  primacy  will  pass  to  Chicago,  and  it  wdll 
become  the  basing  point  without  the  order  of  any  legislature 
or  commission  and  without  the  power  of  any  person  to  pre- 
vent it.  Until  that  time  and  so  long  as  Chicago  is  onlj'  able 
to  manufacture  less  than  half  of  what  it  consumes,  it  is  idle 
respondents  submit,  and  contrary  to  all  economic  laws  to 
insist  that  it  shall  be  made  a  basing  point.  Chicago  pro- 
ducers cannot  be  expected,  nor  should  they  be  required,  to 
sell  their  products  in  any  locality  at  less  than  the  market 
price  prevailing  in  such  locality,  or  at  a  substantially  less 
price  than  their  customers  in  such  locality  are  obliged  to  pay 
to  other  producers  for  the  major  part  of  their  requirements. 

7.  Respondent,  United  States  Steel  Corporation,  denies 
that  it  discriminates  between  the  purchasers  of  iron  and 
steel  in  the  Pittsburgh  and  Chicago  districts  within  the 
meaning  of  section  2  of  the  Claji^on  Act.  Assuming  (al- 
though such  is  not  the  fact)  that  it  sells  in  the  Pittsburgh 
district  what  is  there  sold  by  the  Carnegie  Steel  Co.,  and  in 
the  Chicago  district  what  is  there  sold  by  the  Illinois  Steel 
Co.,  it  says  that  such  sales  are  made  in  each  district  to  pur- 
chasers of  the  same  class  at  the  same  price  and  are  made  in 
each  district  at  the  market  prices  there  prevailing.  Iron 
and  steel  are  sold  generally  to  the  manufacturers  of  agri- 
cultural implements,  and  steel  rails  and  accessories  are  sold 
to  the  railroads  on  a  different  basis  and,  in  the  case  of  some 
articles,  at  a  lower  price  than  to  other  consumers.  The 
users  of  such  steel,  however,  are  not  in  competition  with 
any  other  class  of  users,  and  the  practice  neither  lessens 
competition  nor  tends  to  create  a  monopoly. 

8.  Respondents  deny  that  the  charging  of  a  greater  price 
for  steel  products  in  the  Chicago  district  than  is  charged  for 
like  products  in  the  Pittsburgh  district  under  the  circum- 
stances above  set  forth  amounts  to  unfair  trading  within  the 


PRICE  POLICIES  315 

meaning  of  the  fifth  section  of  the  Federal  Trade  Com- 
mission Act.  The  unfair  trading  prohibited  in  that  section 
is  such  as  tends  to  the  injury  of  competitors,  not  customers, 
and  it  is  not  suggested  that  the  practice  complained  of  is  of 
that  character.  Moreover,  such  practice  operates  to  the 
benefit  of  the  consumers  of  steel,  without  regard  to  their  loca- 
tion, as  it  gives  them  the  benefit  of  the  competition  of  the 
manufacturers  of  the  whole  country,  whereas  if  the  course 
insisted  upon  by  the  applicants  should  be  adopted  competi- 
tion between  localities  would  to  a  large  extent,  if  not  alto- 
gether, be  destroyed.  Nor  is  the  claim  that  the  Chicago 
fabricators  are  prevented  by  the  practice  in  question  from 
competing  with  the  Pittsburgh  fabricators  in  the  latter's 
territory  a  substantial  one.  The  fabricating  business  is 
essentially  local  in  character  on  account  of  the  high  freight 
rate  on  fabricated  material  because  of  its  bulk.  The  Chicago 
fabricators  therefore  could  not  successfully  compete  with 
the  Pittsburgh  fabricators  in  the  latter's  territory,  even  if 
the  cost  of  rolled  steel  w-as  the  same  in  each  locality. 

9.  While  respondents  concede  the  jurisdiction  of  the 
Commission  to  determine  any  question  of  discrimination 
arising  under  the  second  section  of  the  Clayton  Act  and  any 
question  of  unfair  methods  of  competition  arising  under  the 
fifth  section  of  the  Federal  Trade  Commission  Act,  they 
deny  the  jurisdiction  of  the  Commission  to  fix  the  prices  at 
which  steel  products  shall  be  sold  or  to  determine  whether 
Pittsburgh,  Chicago  or  any  other  point  shall  be  a  basing 
point  upon  which  such  prices  shall  be  made.  As  to  the  alle- 
gations of  discrimination  and  unfair  methods  of  competition, 
respondents  submit  that  the  practices  hereinbefore  described 
do  not  involve  either,  and  do  not  tend  to  substantially  lessen 
competition  or  to  create  a  monopoly  in  any  line  of  commerce. 

10.  Respondents  respectfully  submit  that  the  application 
for  a  complaint  should  be  denied. 

ANSWER   OF   THE    STEEL   AND   TUBE   CO.    OF   AMERICA' 


2.  The  said  method  of  fixing  prices  is  not  the  result  of 
any  agreement,  or  of  any  understanding  amounting  to  agree- 
ment, between  this  respondent  and  other  producers  of  steel, 
in  order  to  maintain  prices  of  steel,  either  in  the  so-called 
Chicago  district  or  elsewhere,  or  for  any  other  purpose. 
No  such  understanding  or  agreement  exists  or  has  existed. 
The  said  method  was  and  is  a  natural  and  necessary  incident 
to  competition  in  the  steel  industry.  The  steel  industry, 
practically,  had  its  origin  in  the  Pittsburgh  district,  which  at 
all  times  has  produced  and  still  docs  produce  much  the 

*  Federal  Trade  Conimisjsion :   Applications,  etc.,  pp.  68-70. 


316  MARKETING  PROBLEMS 

larger  part  of  the  steel  made  in  the  entire  country  and  its 
product  is  sold  throughout  the  country.  The  manufacturers 
of  steel  in  the  Chicago  district,  as  respondent  is  informed 
and  believes,  have  in  the  past  produced  and  do  now  produce 
much  less  than  one-half  of  the  steel  required  to  meet  the 
demands  of  consumers  in  that  district.  The  larger  part  of 
the  needs  of  consumers  of  steel  in  said  district  is  supplied 
from  the  Pittsburgh  district,  and  as  a  necessary  consequence 
the  market  price  within  the  Chicago  district  is  generally  the 
Pittsburgh  price  with  freight  from  Pittsburgh  added.  It  is 
submitted  that  there  cannot  be  two  market  prices  for  steel 
products  in  the  Chicago  district,  one  applying  to  steel  pro- 
duced in  that  district  and  another  to  steel  produced  in 
Pittsburgh  and  shipped  into  that  district,  and  that  so  long 
as  a  large  portion  of  the  needs  of  that  district  must  be  sup- 
plied from  the  Pittsburgh  district  the  market  price  will, 
through  the  natural  operation  of  the  laws  of  trade,  be  gen- 
erally the  price  at  which  the  Pittsburgh  product  is  delivered 
in  the  Chicago  district. 

While  generally  the  prices  in  the  Chicago  district  are 
based  on  Pittsburgh  prices,  the  prices  made  by  the  mills  in 
the  Chicago  district  vary  from  time  to  time,  in  accordance 
with  the  relation  of  the  supply  to  the  demand  in  that 
district. 

3.  The  use  of  the  Pittsburgh  base  by  steel  manufacturers 
is  but  a  method  of  arriving  at  the  price  at  which  the  manu- 
facturer will  market  his  product,  which  is  in  conformity  with, 
controlled  by,  and  subject  to  the  law  of  supply  and  demand. 
The  establishing  of  Chicago  as  a  basing  point  by  the  Com- 
mission, as  is  suggested  in  the  application,  would  be  an 
attempt  arbitrarily  to  fix  prices,  in  disregard  of  "the  natural 
and  normal  forces  governing  supply  and  demand,"  to  use 
the  language  of  the  application.  It  would  have  the  necessary 
effect  of  lessening  competition.  But  this  respondent  sub- 
mits that  it  is  not  within  the  power  of  this  Commission  to  fix 
prices  to  be  observed  by  the  manufacturers,  either  by 
establishing  Chicago  as  a  basing  point  or  by  any  other 
methods. 

4.  Paragraph  7  of  the  application  alleges  that  if  the  use 
of  the  Pittsburgh  base  is  abandoned  "the  supply  in  such 
Chicago  district  of  rolled  steel  and  rolled  steel  products 
will  accommodate  itself  to  and  meet  the  demand  therefor." 
It  is  not  reasonable  to  assume  that  the  development  of  the 
steel  industry  in  Chicago  will  be  stimulated  by  removing 
the  advantage  it  how  has,  arising  out  of  its  proximity  to  its 
chief  market.  It  would  seem  that  the  natural  effect  would 
be  to  check  such  development.  But,  however  that  may  be, 
the  implied  admission  that  the  Chicago  mills  cannot  now 
supply  the  demands  of  the  district  makes  it  certain  that  the 


PRICE  POLICIES  317 

market  price  under  present  condition  in  that  district  can 
only  be  determined  by  the  operation  of  the  law  of  supply 
and  demand. 

5.  The  erection  of  steel  plants  in  the  Chicago  district, 
involving  investment  of  a  large  amount  of  capital,  was  in 
large  measure  due  to  the  advantage  gained  by  nearness  to 
the  market  to  be  supplied.  It  would  be  both  unfair  and 
uneconomic  for  this  Commission,  if  it  had  the  power  to  do  so, 
which  this  respondent  denies,  to  compel  respondent  and 
other  manufacturers  to  forego  this  natural  trade  advantage. 


8.  Much  the  major  portion  of  the  rolled  steel  products 
of  the  respondent  is  in  the  form  of  pipe  and  tubing.  Respond- 
ent is  the  only  manufacturer  of  such  pipe  and  tubing  in  the 
Chicago  district.  It  supplies,  however,  but  a  small  part  of 
the  pipe  and  tubing  used  and  sold  in  said  district,  the  larger 
portion  thereof  being  furnished  from  the  Pittsburgh  district. 
The  price  at  which  it  sells  is  and  must  be,  therefore,  the 
price  made  by  manufacturers  of  the  Pittsburgh  district. 
It  is  therefore  submitted  that  if  this  Commission  has  any 
power,  which  is  denied,  to  require  the  sale  of  the  pipe  and 
tubing  manufactured  by  respondent  upon  a  Chicago  base, 
such  power  should  not  be  exercised  to  compel  respondent  to 
sell  the  comparatively  small  percentage  which  it  produces 
at  a  price  less  than  that  at  which  the  major  portion  of  the 
pipe  and  tubing  sold  in  the  Chicago  district  is  marketed. 

9.  Respondent  denies  that  it  quotes  or  makes,  or  has 
quoted  or  made,  prices  to  manufacturers  of  agricultural 
implements  on  any  other  basis  than  that  used  in  saleo  to 
its  customers  generally.  As  to  the  allegation  that  it  dis- 
criminates in  favor  of  railroad  companies  in  quotations  for 
rails,  angle  bars,  splice  bars,  and  tie  plates,  respondent  says 
it  does  not  manufacture  or  sell  any  of  the  articles  mentioned. 

ANSWER   TO   THE    INLAND    STEEL    CO.* 

The  Inland  Steel  Co.  has  no  steel  works  east  of  the 
Chicago  district  and  sells  very  little,  if  any,  steel  east  of 
Indiana.  Its  natural  market  is  west  of  Oliio,  south  to  the 
Ohio  River,  and  thence  west  to  the  Pacific  coast. 


The  application  apparently  seeks  to  convey  the  impres- 
sion that  the  main  factor  in  the  cost  of  steel  is  the  freight 
rate  upon  iron  ore.  This  is  ob\iously  misleading.  In  the 
production  of  pig  iron  the  tonnage  of  coal  and  limestone 
involved  in  the  process  of  conversion  is  approximately  equal 
to  the  tonnage  of  ore,  and  in  the  production  of  steel  the 

•Federal  Trade  Commission:  Applications,  etc.,  pp.  71-75 


318  MARKETING  PROBLEMS 

tonnage  of  coal  alone  employed  in  the  process  largely  exceeds 
the  tonnage  of  ore.  The  coal  used  in  the  manufacture  of 
coke  for  pig  iron  by  the  Inland  Steel  Co.  must  be  hauled 
to  its  plant  from  the  Pennsylvania  and  West  Virginia  fields, 
and  the  steam  coal  obtained  from  Indiana  and  Illinois  for 
heat-making  purposes  is  more  expensive  in  proportion  to 
quality  than  is  the  coal  of  the  Pittsburgh  district. 

Much  of  the  equipment,  machinery,  and  supplies  used 
in  the  manufacture  of  steel  is  produced  in  quantities  only 
in  the  Pittsburgh  district  and  have  to  be  imported  from  that 
district  by  outside  plants. 

Without  attempting  to  discuss  the  details  of  the  costs 
in  the  respective  territories  and  without  accurate  knowledge 
on  the  subject  the  Inland  Steel  Co.  desires  to  express  its 
conviction  that  production  of  steel  by  equal  plants  in  the 
Pittsburgh  and  Chicago  districts  would  show  lower  cost  in 
the  Pittsburgh  district. 

The  industry  was  first  established  in  the  Pittsburgh 
district.  Many  of  the  large  producers  in  the  Pittsburgh  dis- 
trict entrenched  themselves  by  the  acquirement  at  a  com- 
paratively early  period  of  iron  mines  and  other  sources  of 
raw  material  at  a  price  lower  than  that  at  which  similar 
sources  could  be  acquired  when  Chicago  competitors  en- 
tered the  field.  This  more  than  offsets  any  advantage  which 
the  Chicago  district  steel  makers  enjoy  in  connection  with 
transportation  costs. 


The  individual  members  of  the  association  making  the 
application  have  seemed  generally  to  have  enjoyed  a  period 
of  great  prosperity  during  the  last  few  years.  The  public 
statements  of  such  of  them  as  have  been  accessible  have 
shown  profits  favorably  comparable  in  proportion  to  capital 
invested  with  the  profits  of  the  steel  producer  so  far  as  the 
same  are  matters  of  public  knowlege. 

Under  the  present  system  of  quoting  prices,  with  the 
Pittsburgh  base  as  a  standard,  the  members  of  the  associa- 
tion are  enabled  to  readily  compare  prices  quoted  by  steel 
producers  located  in  any  part  of  the  country. 

If  the  use  of  a  different  base  price  did  not  materially 
alter  prices  quoted,  it  would  obviously  be  useless  to  disturb 
the  present  custom. 

If,  in  fact,  the  steel  producer  in  any  given  locality  under- 
took to  base  his  prices  solely  on  cost  of  production,  giving 
the  customer  the  benefit  of  all  freight  costs  from  competitive 
points,  it  is  plain  that  the  result  would  be  to  create  a  local 
monopoly  on  behalf  of  the  steel  producer  in  any  given  locality 
until  the  entire  product  of  such  local  producer  had  been  sold. 
Thereafter  the  customer  would  be  obliged  to  pay  higher 


PRICE  POLICIES  319 

prices  to  producers  at  other  points  through  the  addition  of 
freight  rates. 


The  Inland  Steel  Co.  has  maintained  its  competitive 
business  under  conditions  of  nation-wide  competition.  It 
beUeves  that  it  can  maintain  its  business  if  such  competition 
is  localized,  but  it  believes  that  locaUzation  of  competition 
would  be  a  disadvantage  as  against  universal  comjoetition, 
which,  based  on  a  clearly  understood  scale  of  prices,  pro- 
duces a  better  understanding  and  relationship  between  the 
steel  producers  and  their  customers. 

Moreover,  the  results  of  the  present  use  of  Pittsburgh 
as  a  basing  point  are  largely  exaggerated  in  the  application 
in  so  far  as  that  practice  aflects  the  great  bulk  of  the  western 
and  northwestern  territory. 

The  use  of  through  rates  based  upon  the  practice  of 
fabrication  in  transit  and  the  difference  between  through 
rates  and  the  sum  of  local  rates  in  many  parts  of  the  country 
minimize  the  freight  differential,  and  in  many  cases  all-water 
or  combined  rail-and-water  rates  as  compared  with  all-rail 
rates  from  Chicago  to  points  west  leave  little  margin  in  the 
local  rate  from  Pittsburgh  to  Chicago. 

The  Inland  Steel  Co.  therefore  expresses  its  conviction 
that  the  applicants,  as  well  as  steel  users  generally,  would 
be  quite  as  likely  to  be  harmed  as  to  be  helped  by  the 
granting  of  the  application,  and  the  Inland  Steel  Co.  believes 
that  the  obvious  result  of  forbidding  the  use  of  the  Pitts- 
burgh base  rate  would  be  to  introduce  a  large  element  of 
confusion  and  uncertainty  into  steel  and  iron  prices  which 
would  be  especially  injurious  under  the  present  conditions 
of  economic  unrest  and  uncertainty 

ANSWER    OF   THE    INTERSTATE    IRON    &   STEEL   CO. 

Interstate  Iron  and  Steel  Co.,  one  of  the  respondents  to 
the  above-named  application,  for  answer  thereto  says: 

1.  Respondent  is  the  owner  of  a  rolling  mill  at  East 
Chicago,  Ind.,  of  the  type  known  as  hand  bar  mills.  At 
said  mill  it  rolls  steel  billets  into  shapes  and  bars  and  pro- 
duces muck  bars  from  pig  iron  and  scrap,  and  rolls  such 
muck  bars  into  iron  bars  and  shapes,  or  combines  such  muck 
bars  with  scrap  and  rolls  such  product  into  iron  bars  and 
shapes.  Respondent  produces  no  other  rolled  iron  or  steel 
products  at  said  mill  aforesaid,  and  produces  no  rolled  iron 
or  steel  products  elsewhere  in  the  territory  referred  to  and 
described  as  the  Chicago  district  in  said  application  for  a 
complaint.  The  raw  material  used  in  such  production  is  in 
part  pig  iron  and  scrap,  which  respondent  purchases  in  the 

'  Federal  Trade  Commission:  Applicalions,  etc.,  pp.  76,  78. 


320  MARKETING  PROBLEMS 

market  and  does  not  produce,  sell  or  deal  in.  The  other 
raw  materials  used  in  such  production  are  steel  billets, 
which  respondent  produces  in  open-hearth  furnaces  in 
Chicago,  111.  Such  steel  billets  are  likewise  produced  from 
pig  iron  and  scrap,  which  respondent  purchases  in  the  market 
and  does  not  produce,  sell,  or  deal  in. 

Respondent  docs  not  own  or  operate  any  blast  furnaces 
and  does  not  own  or  use  any  iron  ores  in  the  production  of 
iron  and  steel  and  is  not  an  integrated  steel  producer.  The 
raw  material  used  by  respondent  includes  in  its  cost  to 
respondent  a  profit  to  the  producer  thereof.  The  other 
respondents  to  said  application  are  integrated  producers 
using  iron  ores  as  raw  materials. 

2.  Respondent  denies  that  the  cost  of  such  product  as 
is  produced  at  its  said  East  Chicago,  Ind.,  mill  is  lower  than 
the  cost  of  similar  product  produced  by  the  Carnegie  plant 
of  the  United  States  Steel  Corporation  or  lower  than  the 
cost  of  similar  product  produced  at  other  mills  in  the  Pitts- 
burgh district,  and,  on  the  contrary,  avers  and  charges  the 
fact  to  be  that  the  cost  of  the  rolled  iron  and  steel  shapes 
and  bars  produced  at  its  East  Chicago,  Ind.,  mill  (to  which 
products  its  output  is  Umited)  is  substantially  higher  than 
the  cost  of  similar  product  produced  by  the  Carnegie  plant 
and  similar  mills  in  the  Pittsburgh  district.  The  products 
produced  by  respondent  at  said  East  Chicago  mill  are  pro- 
duced at  high  cost  by  high-grade  skilled  workmen  through 
the  use  of  hand  bar  mills. 

The  other  respondents  to  said  application  and  said 
Carnegie  plant  of  the  United  States  Steel  Corporation,  and 
other  producers  in  the  Pittsburgh  district,  operate  continuous 
bar  mills. 

:)c  :}:  ^  H<  :{: 

8.  Respondent  established  its  said  roUing  mill  at  East 
Chicago,  Ind.,  in  1905,  knowing  its  production  costs  would 
be  materially  higher  than  those  of  mills  in  the  Pittsburgh 
district,  and  believing  at  the  time  that  such  higher  costs 
would  to  some  extent  be  equaUzed  in  competition,  in  that 
as  a  producer  of  such  products  in  the  Chicago  district, 
respondent  would  be  able  to  obtain  therefor  the  Pittsburgh 
price  plus  the  freight  to  dehvery  point  until  and  unless  the 
production  of  the  Chicago  district  would  equal  or  exceed 
the  consumption.  Respondent  beheves  that  although  the 
production  of  the  Chicago  district  has  greatly  increased  in 
recent  yeare  that  for  many  years  the  consumption  of  such 
products  will  continue  to  exceed  the  production  thereof. 

STATEMENT  OF  SOUTHERN  BRIDGE  CO.^ 

In  reference  to  the  question  of  base  steel  prices  we  wish 
*  Federal  Trade  Commission:  Applications,  etc.,  p.  81. 


PRICE  POLICIES  321 

to  enter  our  protest  against  the  present  practice  of  using 
Pittsburgh,  Pa.,  as  a  basing  point,  regardless  of  the  produc- 
tion of  steel  at  a  lower  or  equal  costs  at  other  points. 

At  present  we  obtain  a  certain  proportion  of  our  rolled- 
steel  shapes,  say  60  per  cent  or  greater,  from  local  mills  in  this 
district,  on  which  we  pay  at  the  rate  of  Pittsburgh  base  plus 
$3  per  ton. 

In  competition  with  fabricators  from  the  Pittsburgh 
territory  to  points  north  we  are  thus  placed  at  a  disadvantage, 
for,  assuming  that  our  costs  of  fabrication  are  the  same  as 
fabricators  in  the  Pittsburgh  district,  we  are  handicapped  in 
the  sum  of  S3  per  ton  in  bidding  on  fabricated  steel  work  to 
points  that  carry  an  equal  freight  rate  between  this  city 
and  Pittsburgh. 

We  trust  that  after  full  investigation  action  will  be 
taken  to  place  this  district  on  the  basis  to  which  it  is  entitled. 

STATEMENT   OF   OSCAR   DANIELS   CO.^ 

We  desire  to  call  your  attention  to  the  manner  in  which 
southern  shipbuilders  are  being  discriminated  against  in  the 
matter  of  prices  on  steel,  owing  to  the  fact  that  the  freight 
differential  between  Pittsburgh  and  Birmingham,  or  a  por- 
tion of  it,  is  added  to  the  Pittsburgh  base  price  for  all  steel 
emanating  from  the  Birmingham  district. 

We  at  the  present  time  have  a  contract  with  the  Shipping 
Board  for  10  steel  ships  for  which  over  30,000  tons  of  steel 
were  required.  In  billing  all  steel  rolled  in  the  Birmingham 
district  the  freight  differential  between  Pittsburgh  and 
Birmingham  was  added  to  the  base  price.  This  amounted 
to  between  $6  and  $6.50  per  ton  on  about  15,000  tons  of 
material  which  was  rolled  in  the  Birmingham  district. 

You  can  readily  see  that  in  competition  with  shipyards 
in  the  eastern  district  the  southern  shipbuilder  would  be 
handicapped  to  the  extent  of  this  differential. 

We  have  recently  had  occasion  to  get  some  quotations 
on  steel  both  from  Birmingham  district  and  Pittsburgh 
district.  The  quotations  from  the  Birmingham  district  on 
beams  were  $3  a  ton  lower  f.  o.  b.  Tampa  than  the  Pitts- 
burgh quotations,  on  plates  $3.30  per  ton,  on  bars  $3.50  a 
ton  lower.  The  freight  differential  between  these  two  places 
is  $6  a  ton  on  shapes  and  $6.36  on  plates,  exclusive  of  war 
tax.  It  is  therefore  evident  that  the  price  of  steel  on  the 
basis  of  these  prices  is  about  $3  higher  f.  o.  b.  Birmingham 
than  f.  o.  b.  Pittsburgh,  and  therefore  adds  this  amount  to 
the  cost  of  building  ships  in  the  southern  district. 

The  establishment  of  a  base  price  for  steel  emanating 
in  the  Birmingham  district  same  as  that  emanting  from  the 
Pittsburgh  district  would  place  the  southern  shipbuildec! 

'  Federal  Trade  Commission:  Applications,  etc.,  pp.  99-100. 


322  MARKETING  PROBLEMS 

on  the  equal  competitive  footing  with  the  shipbuilders  in 
eastern  district,  and  the  establishment  of  such  a  base  rate 
would  work  no  hardship  upon  the  steel  manufacturers,  as 
the  cost  of  steel  fabrication  in  the  Birmingham  district  is 
lower  than  that  in  the  Pittsburgh  district. 

STATEMENT  OF  THE  UNION  COTTON  WAREHOUSE  ORGANIZATION 
CORPORATION    OF   DELAWARE^ 

As  the  Union  Cotton  Warehouse  Corporation  contem- 
plates the  construction  of  a  chain  of  cotton  warehouses  at 
southern  points,  involving  the  use  of  considerable  steel  ton- 
nage, we  are  very  much  interested  in  the  question  of  steel 
prices  which  you  are  about  to  investigate.  According  to 
our  information,  it  will  be  immaterial  to  us  whether  we 
order  our  steel  requirements  from  the  Pittsburgh  or  Birm- 
ingham mills  as,  by  reason  of  the  single  base  at  Pittsburgh, 
prices  delivered  at  any  destination  are  the  same  as  from 
other  producing  points. 

We  have  estimated  that,  if  we  could  get  prices  at  the 
Birmingham  mills  equal  to  the  Pittsburgh  mill  prices,  we 
would  effect  a  saving  of  between  S300,000  and  $500,000  on 
the  basis  of  an  ultimate  aggregate  capacity  of  2,400,000 
bales  for  our  warehouses.  Engineers  estimate  that  28,000,000 
square  feet  of  floor  space  would  be  involved,  and  that  on  the 
average  7  pounds  of  steel  bars  to  the  square  foot  of  building 
space  would  be  necessary.  Thus,  with  an  average  discrim- 
ination in  steel  prices  of  $3  per  ton,  the  tribute  we  would  pay 
to  the  single-base  system  would  not  be  less  than  $300,000. 

Our  understanding  is  that  steel  production  at  Birming- 
ham costs  less  than  at  Pittsburgh,  and,  if  so,  we  see  no  reason 
why,  if  open  competition  existed,  southern  consumers  of 
steel  should  not  be  entitled  to  the  prices  related  to  their 
distance  from  Birmingham,  instead  of  arbitrarily  being 
subjected  to  the  penalty  of  the  fictitious  freight  rate  from 
Pittsburgh. 

STATEMENT   OF   N.    &    G.    TAYLOR   CO.^ 

Referring  to  the  application  that  has  been  filed  with 
you  from  the  Western  Association  of  Rolled  Steel  Consumers 
for  the  issuance  of  a  complaint  by  your  Commission  against 
the  United  States  Steel  Corporation  and  other  steel  producers 
regarding  the  practice  of  selling  steel  on  a  Pittsburgh  basing- 
point  basis,  we  wish  to  go  on  record  as  being  in  favor  of  the 
present  practice  and  opposed  to  any  change  from  the  method 
that  has  been  in  vogue  for  many  years  past  of  using  Pitts- 
burgh as  the  basing  point. 

We  are  independent  manufacturers,  located  outside  the 
Pittsburgh  district,  and  firmly  believe  that  the  disadvantage 

*  Federal  Trade  Commission:  Applications,  etc.,  p.  112. 

2/Wd,  p.  114. 


PRICE  POLICIES  323 

of  any  change  from  the  present  system  would  greatly  out- 
weigh any  benefit  that  might  be  derived  by  abandoning 
Pittsburgh  as  a  basing  point.  The  generally  accepted 
method  of  using  Pittsburgh  as  the  basing  point  has  been  of 
great  benefit  to  the  trade  by  standardizing  prices  and 
greatly  simplifying  the  details  of  buying  and  selling. 

The  Pittsburgh  basing  plan  is  not  obligatory  upon  any- 
one, and  if  a  local  mill  desires  to  make  special  quotations  to 
near-by  users  that  is  their  privilege. 

To  abandon  this  uniform  price-basing  plan  would  bring 
about  far-reaching  complications  and  difficulties. 

We  are  strongly  opposed,  therefore,  to  any  change  in 
the  present  practice. 

STATEMENT  OF  GULF  STATES  STEEL  CO.' 
***** 

Assuming  that  there  were  no  steel  works  in  Alabama, 
and  that  all  steel  must  be  shipped  into  this  State  from  Pitts- 
burgh, the  price  would  be  Pittsburgh  plus  freight.  If  it 
were  proposed  to  establish  a  steel  works  in  Birmingham  and 
the  right  to  produce  and  sell  steel  here  should  be  coupled 
with  the  obligation  to  sell  at  the  cost  of  production  not 
exceeding  the  cost  in  Pittsburgh,  what  inducement  would 
there  be  to  establish  such  works?  Even  if  the  cost  of  pro- 
duction were  as  low  as  in  Pittsburgh,  and  the  Birmingham 
producer  should  charge  the  equivalent  of  Pittsburgh  price 
plus  freight,  the  Birmingham  consumer  would  not  be  preju- 
diced, he  would  not  be  injured,  he  would  be  paying  the  same 
price  that  he  was  before,  but  would  have  the  advantage  of  a 
producer  at  his  door  who  would  relieve  him  from  investing 
capital  and  carrying  stocks,  and  would  give  him  prompt 
delivery  to  suit  his  exact  requirements  at  a  moment's  notice. 
What  moral  ground  has  the  Civic  Association  on  which  to 
demand  that  the  builder  of  steel  works  in  the  Birmingham 
district  shall  forego  and  relinquish  any  advantage  that  he 
has  obtained  by  the  location  of  his  works  in  a  consuming 
district  and  hand  over  that  advantage  to  some  consumer 
who  has  not  taken  perhaps  1  per  cent  of  the  risks  or  invested 
1  per  cent  of  the  capital  of  the  steel  producer  itself.  I  sub- 
mit that  the  demand  is  nothing  less  than  an  arbitrary  one 
to  take  accrued  advantage  from  one  who  is  a  producer  and 
hand  it  to  one  who  is  a  consumer  and  who  has  not  made  the 
demand  himself,  but  is  satisfied  with  his  present  situation. 

The  idea  that  the  Birmingham  district  can  produce  more 
cheaply  and  sell  more  cheaply  than  any  other  in  the  United 
States  is  erroneous  and  based  upon  traditions  or  in  some 
cases  facts  which  have  ceased  to  exist,  owing  to  changed 
conditions. 

'  Federal  Trade  Commission:  Applxcaiions,  etc.,  pp.  IIG,  117. 


324  MARKETING  PROBLEMS 

In  the  early  days  of  Birmingham  50  per  cent  ores  were 
mined  from  the  outcrop  by  handwork  and  transported  on 
an  average  freight  rate  of  12^  cents  per  ton  of  2,240  pounds 
to  blast  furnaces  within  the  Birmingham  zone.  Today  those 
rich,  soft  outcrops  have  been  entirely  exhausted  and  the 
hard  ore  is  followed  in  some  cases  as  deeply  as  to  the  sea 
level  or  far  below  it;  and  the  district  is  dependent  upon  ore 
which  does  not  exceed  36  per  cent  metallic  iron;  is  hard; 
requires  mining  with  power  equipment,  single  installations 
costing  in  some  cases  from  one-half  to  three-quarters  of  a 
million  dollars,  and  after  production  subject  to  a  freight 
rate  of  50  cents  per  short  ton  of  2,000  pounds. 

The  best  quality  of  coking  coal  in  the  district — the 
Pratt  seam — has  been  very  largely  depleted,  and  few  of  the 
producers  are  able  longer  to  rely  upon  it,  but  the  greater 
part  of  the  metallurgical  fuel  produced  in  the  district  is  from 
"big  seam"  coal,  which  requires  washing.  Although  the 
Birmingham  district  only  produces  3  per  cent  of  the  coal 
of  the  United  States,  it  produces  40  per  cent  of  the  washed 
coal  of  the  country,  the  washer  loss  running  from  12  to  25 
per  cent,  according  to  the  character  of  coal  and  efficiency  of 
equipment. 

The  labor  of  the  South  is  notoriously  less  efficient  phys- 
ically, man  for  man,  than  that  of  the  North.  This  is  ad- 
mittedly due  to  climatic  conditions,  which,  on  the  other 
had,  permit  cheaper  housing,  clothing,  and  feeding  than  in 
the  North;  and  in  the  past,  southern  labor  was  cheaper. 
Now,  under  the  strain  of  war,  men  command  the  same 
wages,  regardless  of  their  efficiency.  This  is  especially  so 
with  reference  to  what  is  called  unskilled  labor. 

The  cost  accounts  on  file  with  the  Federal  Trade  Com- 
mission show  that  the  South  no  longer  dictates  to  the  rest 
of  the  United  States  what  shall  be  the  price  of  pig  iron;  it  is 
no  longer  able  to  do  so.  The  Birmingham  district  is  handi- 
capped in  its  supply  of  scrap.  It  cannot,  by  reason  of  the 
incidence  of  railroad  freights,  buy  from  distant  northern 
markets  and  bring  scrap  South,  but  the  northern  consumer 
can,  and  does,  buy  southern  scrap  which  is  on  its  way  to  the 
market.  A  buyer  in  Cincinnati  or  Chicago  or  St.  Louis  can 
buy  in  Birmingham  and  convert  into  steel  at  the  point  of 
ultimate  consumption.  If  the  Birmingham  buyer  tried  to 
retaliate  he  would  pay  freight  on  the  scrap  going  South  and 
again  on  his  steel  products  going  back  North  and  could  not 
compete. 

Thus  neither  in  coal,  coke,  ore,  pig  iron,  scrap,  or  labor 
is  the  Birmingham  producer  in  any  way  helped  or  advantaged 
over  his  northern  competitor.  The  only  single  advantage 
that  he  has  is  that  he  is  nearer  to  his  market,  if  he  desires  to 
confine  himself  to  the  sale  of  his  products  in  the  southern 


PRICE  POLICIES  32d 

zone,  and  this  sole  advantage  the  Civic  Association  of  Birm- 
ingham would  ask  the  Federal  Trade  Commission  to  take 
from  him  and  put  him  out  of  business. 

STATEMENT   OF   LACKAWANNA   STEEL   CO.* 


2.  Lackawanna  Steel  Co.  generally  sells  and  since  its 
inception  has  generally  sold  its  steel  products,  such  as 
structural  shapes,  plates,  merchant  bars,  etc.,  at  the  market 
prices,  plus  an  amount  equal  to  the  published  tariff  rate  of 
freight  on  such  products  from  Pittsburgh  to  the  point  of 
destination.  The  practice  just  described  is  and  for  many 
years  has  been  the  practice  of  steel  manufacturers  generally 
and  is  the  growth  and  outcome  of  the  natural  law  of  supply 
and  demand.  So  far  as  is  known  to  this  company,  this  has 
been  the  custom  of  the  trade  since  the  commencement  of 
the  steel  industry  for  the  reason  that  during  that  time  the 
so-called  Pittsburgh  district  has  produced  a  majority  of  all 
the  steel  produced  by  all  manufacturers  in  the  United  States. 
Under  this  custom  the  company  is  able  to  quote  prices  to 
any  point  by  ascertaining  the  amount  of  the  published  tariff 
rate  of  freight  from  Pittsburgh  to  that  point.  There  have 
been  certain  exceptions  to  the  general  rule  in  the  experience 
of  the  company.  At  certain  times  when  the  supply  has 
exceeded  the  demand,  the  custom  has  been  more  or  less 
disregarded  by  all  producers,  but  at  a  loss. 

3.  The  freight  from  Pittsburgh  to  any  given  locality  is 
necessarily  an  element  of  the  market  price  of  steel  in  that 
locaUty.  This  is  so,  not  as  the  result  of  an  arbitrary  price 
system,  but  because  of  purely  economic  reasons,  as  follows: 

Under  existing  conditions  it  is  a  fact  that  the  Pittsburgh 
district  supplies  a  greater  amount  of  steel  than  any  other 
district.  It  produces  approximately  70  per  cent  of  the  whole 
production  of  the  country.  It  is  a  further  fact  that  the 
Chicago  and  tributary  districts  do  not  supply  a  sufficient 
quantity  of  steel  to  meet  their  own  requirements,  and  that  a 
substantially  larger  part  of  the  reciuirements  of  these  dis- 
tricts is  supplied  by  outside  steel-producing  districts, 
among  which  the  Pittsburgh  district  strongly  predominates. 
This  being  the  case,  the  consumer  in  the  Chicago  and  tribu- 
tary districts  must  finally,  in  order  to  obtain  his  full  supply, 
call  upon  the  Pittsburgh  producer  and  pay  the  price  of  the 
Pittsburgh  producer.  Consequently,  by  the  operation  of 
natural  economic  laws,  the  market  price  in  the  Chicago  dis- 
trict, as  well  as  elsewhere,  is  dependent  upon  the  amount 
for  which  the  Pittsburgh  producer  will  sell,  and  that  amount 
is  based  in  part  on  the  freight  from  Pittsburgh  to  Chicago 

'  Federal  Trade  Commission:  Applicatiom,  etc.,  pp.  122-125. 


326  MARKETING  PROBLEMS 

or  other  destination.  This  will  hold  true  so  long  as  Pitts- 
burgh continues  to  have  a  larger  output  than  any  other 
district. 


7.  The  company  further  submits  that  in  the  event  of  an 
order  of  this  Commission  merely  abolishing  the  Pittsburgh 
base  or  merely  decreeing  a  Chicago  or  other  base  without 
more,  the  only  effect  would  be  that  the  steel  companies 
would  discontinue  the  form  of  making  their  prices  based  on 
Pittsburgh  plus  published  tariff  rate  of  freight,  but  would 
charge  a  price  which  would  still  be  in  fact  a  price  plus  pub- 
lished tariff  rate  of  freight  from  Pittsburgh,  so  that  the 
action  of  the  Commission  would  be  nugatory. 

STATEMENT   OF   JONES    &    LAUGHLIN    STEEL   CO.^ 

:)!  ^  ^  H^  ^ 

The  Jones  &  Laughlin  Steel  Co.  has  shipped  into  the 
Chicago  district  and  the  western  territory  tributary  thereto 
for  several  years  past  from  25  to  30  per  cent  of  its  production, 

and  the  presumption  is  other  mills  have  shipped  as  much. 
It  is  manifest,  therefore,  that  the  Chicago  district  would  fall 
far  short  of  supplying  its  local  market  and  the  great  territory 

west,  southwest,  and  northwest.  The  general  effect  of 
making  Chicago  a  basing  point  would  be  a  depreciation  of 
mvestment  in  the  Pittsburgh  district  and  a  call  for  new  and 
additional  investment  in  the  Chicago  district.  This  would 
mean  tearing  down  in  one  district,  and  building  up  in 
another  without  changing  the  country's  total  steel  produc- 
tion and  would  also  result  in  a  depreciation — in  some  cases 
the  destruction — of  industries  which  have  been  built  up  in 
the  Pittsburgh  district  to  supply  the  needs  of  the  iron  and 
steel  mills  located  there. 


The  Jones  &  Laughlin  Steel  Co.  and  all  other  independent 
steel  companies  would  be  at  an  unfair  disadvantage  if 
Chicago  were  made  a  basing  point,  to  say  nothing  of  other 
basing  points  that  naturally  would  follow  because  the 
United  States  Steel  Corporation  has  large  and  complete 
producing  units  at  almost  every  important  steel  producing 
point.  If  these  points  should  carry  their  own  base  price, 
the  one  largest  producer  in  the  country  would  hold  a  position 
of  advantage  in  every  market  and  in  some,  as,  for  example, 
Duluth,  Minn. ;  and  Birmingham,  Ala. ;  have  no  competition. 

*  Federal  Trade  Commission:  A'pjUications,  etc.,  pp.  130-131. 


PRICE  POLICIES  327 

STATEMENT   OF   THE   REPUBLIC    IRON    AND    STEEL    CO.^ 


3.  Pittsburgh,  with  its  predominant  production  and 
variety,  its  cheapness  of  product,  and  also  because  of  its 
many  competitive  producers  have  always  naturally  qualified 
Pittsburgh  as  a  basing  point,  and  for  this  rea.son  the  custom 
of  selling  steel  f.  o.  b.  Pittsburgh  is  a  natural  custom  and  an 
economic  necessity. 

4.  It  is  true  that  the  Pittsburgh  l)ase  hiis  not  always 
been  maintained  because  during  periods  of  business  depres- 
sion, and  for  other  reasons  affecting  demand  at  any  given 
producing  point  where  supply  is  in  excess  of  demand,  pro- 
ducers under  such  conditions,  in  order  to  protect  their 
operations  whether  located  at  Chicago,  Buffalo,  Cleveland, 
Youngstown,  or  elsewhere,  have  sold  and  doubtless  will 
continue  to  sell  again  at  prices  which  discount  Pittsburgh 
freight  rates  and,  in  fact,  without  profit,  frequently  at  a  loss, 
as  in  1914  and  1915  and  other  periods. 

5.  Steel  is  not  the  only  product  enjoying  the  distinction 
of  having  a  base  market;  in  fact,  the  practice  is  quite  com- 
mon for  such  steel  supplies  as  spelter,  pig  tin,  coke,  iron 
ore,  and  manganese,  which  are  generally  sold  as  follows: 

Manganese,  f.  o.  b.  Atlantic  seaboard. 

Pig  tin,  c.  i.  f.  England, 

Spelter,  f.  o.  b.  East  St.  Louis, 

Coke,  f.  o.  b.  Pittsburgh, 

Iron  ore,  f.  o.  b.  Lower  Lake  port 
and  in  addition  to  these: 

Flour,  f.  o.  b.  Minneapolis, 

Wool,  f.  o.  b.  Boston, 

Cotton,  f.  o.  b.  New  Orleans, 

Coffee,  f.  o.  b.  New  York, 

Copper,  f.  o.  b.  New  York, 

Plate  glass,  f.  o.  b.  Pittsburgh 
and  other  products  in  a  like  manner. 

6.  That  the  Pittsburgh  base  has  built  up  excessive  profits 
for  the  Chicago  district  mills  is  not  indicated  by  the  pub- 
lished financial  statements  of  the  respondent  companies, 
although  it  may  be  admitted  that  these  companies  have 
enjoyed  large  profits,  at  times,  but  not  unfairly  large  when 
compared  with  the  earnings  published  by  other  companies 
located  at  Pittsburgh,  Youngstown,  Johnstown,  Bethlehem, 
and  elsewhere. 


8.  It  is  further  claimed  that  Chicago  could  not  be  made 
a  basing  point,  except  by  an  agreement  which  contemplated 

*  Federal  Trade  Commission:  Applications,  etc.,  pp.  152-153. 


328  MARKETING  PROBLEMS 

fixing  a  base  price,  because  there  is  no  suflficient  competition, 
variety  of  products,  or  tonnage  to  establisii  Chicago  as  a 
basing  point  by  the  free  play  of  competition,  as  is  the  case 
at  the  Pittsburgh  base,  and  what  is  true  of  Chicago  is  equally 
true  of  Birmingham,  Duluth,  Cleveland,  Youngstown,  Buf- 
falo, and  other  producing  points.  Therefore  more  than  one 
base  is  neither  practical  nor  economic. 

STATEMENT   OF   ATLANTIC   STEEL   CO.* 

The  Atlantic  Steel  Co.  is  located  in  Atlanta,  Ga.,  190 
miles  from  Birmingham,  Ala.,  the  nearest  source  from 
which  it  can  procure  its  supplies  of  coal  and  iron.  The 
distance  from  Pittsburgh  to  Atlanta  is  788  miles.  When 
this  plant  was  built  in  1906  it  was  contemplated  that  it  would 
have  an  advantage  in  price  over  Pittsburgh  equal  to  this 
difference  in  freight  from  Pittsburgh  to  destination  and  from 
Atlanta  to  destination.  For  instance,  the  rate  on  nails 
from  Pittsburgh  to  Montgomery,  Ala.,  is  57  cents  per  100 
pounds,  while  the  rate  from  Atlanta  to  Montgomery  is  19 
cents  per  100  pounds,  so  that  in  selling  nails  in  Montgomery 
this  company  will  absorb  a  difference  of  38  cents  per  100 
pounds.  This  practice  also  applies  to  the  other  products 
which  this  company  makes,  viz.:  various  wire  products, 
bars,  hoops,  bands,  cotton  ties,  etc. 

tJsing  Pittsburgh  as  a  basing  point  in  selling  steel  is  a 
custom  or  practice  which  has  been  established  for  many 
years,  owing  to  the  very  great  advantage  which  it  had  over 
other  sections  of  the  country  in  the  assembling  of  raw 
materials  and  the  organization  which  it  had  built  upon 
around  its  mills.  If  it  should  be  decided  that  Pittsburgh 
can  no  longer  be  used  as  a  basing  point  for  steel  products 
made  in  other  sections  of  the  country,  it  will  work  a  great 
hardship  upon  this  company,  if  not  totally  destroy  its  prop- 
erty, amounting  to  between  $4,000,000  and  $5,000,000,  for 
it  is  not  in  position  and  probably  never  will  be  to  compete 
successfully  with  other  sections  that  are  more  favorably 
located  with  reference  to  raw  materials.  This  will  also 
apply  to  a  very  large  number  of  small  mills  located  in  various 
sections  of  the  country  remote  from  the  Pittsburgh  district 
and  which  never  would  have  been  built  except  for  the  advan- 
tage which  they  gained  by  using  Pittsburgh  as  a  basing 
point. 

The  building  and  operation  of  isolated  mills  remote  from 
natural  sources  prevents  congestion  and  expedites  distribu- 
tion of  finished  products,  besides  offering  to  communities 
employment  which  would  not  otherwise  be  the  case,  but  all 
of  this  has  been  covered  in  the  report  referred  to. 

^  Federal  Trade  Commission:  Applications,  etc.,  p.  161. 


PRICE  POLICIES  329 

STATEMENT  OF  BETHLEHEM  STEEL  CO.* 

4:  *  4:  *  4= 

In  using  the  Pittsburgh  base  in  quoting  prices  the  manu- 
facturer simply  states  to  a  prospective  customer  in  a  given 
territory  in  effect  that  the  price  of  the  product  offered  is  so 
many  dollars  per  ton  plus  an  amount  equal  to  the  freight 
between  Pittsburgh  and  the  point  of  delivery.  The  ut^e  of 
this  base  gives  precisel}''  the  same  result  to  customers  as  if 
each  manufacturer  were  to  quote  prices  f.  o.  b.  the  point  of 
delivery  or  f.  o.  b.  mills,  because  in  any  case  the  ultimate 
price  would  be  computed  on  the  basis  of  the  price  at  the 
mill  plus  freight  to  the  point  of  delivery.  The  objection  to 
quoting  prices  f.  o.  b.  the  point  of  delivery  is  that  manu- 
facturers would  have  to  make  extended  computationij  based 
on  varying  freight  rates.  The  objection  to  quoting  prices 
f.  o.  b.  mill  is  that  similar  computations  would  have  to  be 
made  by  the  customers  before  they  would  be  able  to  com- 
pare quotations.  With  the  use  of  the  Pittsburgh  base,  how- 
ever, manufacturers  can  readily  make  quotations,  and  cus- 
tomers can  compare  with  equal  ease  the  quotations  of 
different  manufacturers,  since  the  freight  from  Pittsburgh 
to  a  given  point  is  the  same  for  each  customer. 

Manifestly,  if  a  manufacturer  in  tlie  Pittsburgh  district 
wishes  to  make  a  low  price  for  delivery  in  the  Chicago  dis- 
trict in  order  to  take  the  business  from  the  mills  in  that 
district,  all  he  has  to  do  is  to  make  a  low  price  f.  o.  b.  Pitts- 
burgh. His  freedom  to  make  a  low  price  is  just  as  great 
when  the  price  consists  of  a  price  at  Pittsburgh  and  the 
freight  to  the  point  of  delivery  has  to  be  added  as  when  it 
consists  of  a  price  at  the  point  of  delivery  in  which  the 
freight  is  included,  although  not  shown  as  a  separate  item. 


II 

The  real  question  raised  by  the  petition  is  whether  it  is 
unlawful  for  a  manufacturer  who  has  mills  in  both  the 
Chicago  district  and  the  Pittsburgh  district  to  sell  the  prod- 
ucts of  his  Chicago  mills  in  the  Chicago  district  at  prices 
higher  than  those  at  which  he  sells  the  products  of  his 
Pittsburgh  mills  in  the  Pittsburgh  district,  although  the 
cost  of  the  products  in  both  districts  is  the  same. 

As  we  understand  the  petition  and  the  matters  com- 
plained of,  the  real  question  raised  is  not  the  propriety  of 
using  the  Pittsburgh  base  in  quoting  prices  for  rolled-steel 
products,  but  is  found  in  the  charge  that  the  respondents 
discriminate  in  the  price  of  such  products  in  favor  of  com- 
petitors of  members  of  the  petitioner  herein  who  arc  located 

1  Federid  Trade  Commission:  Applications,  etc,  pp.  165-169,  172. 


330  MARKETING  PROBLEMS 

in  the  Pittsburgh  district  or  the  territory  east  of  the  Chicago 
district  and  against  such  members  and  other  consumers  of 
rolled-steel  products  located  in  the  Chicago  district. 
*  *  *  *  * 

It  is  apparent  that  this  charge  against  United  States 
Steel  Corporation  in  no  way  involves  the  propriety  of  the 
use  of  the  Pittsburgh  base  in  quoting  prices,  because  the 
result  would  be  the  same  whether  the  price  charged  in  the 
Chicago  district  were  (a)  the  price  charged  in  the  Pittsburgh 
district  plus  $5  as  the  freight  from  Pittsburgh  to  Chicago,  or 
(b)  a  price  $5  per  ton  higher  than  the  price  for  the  same 
product  in  the  Pittsburgh  district.  The  resulting  price  to 
the  consumer  would  be  the  same  in  either  case. 

We  are,  therefore,  brought  face  to  face  with  the  question, 
whether  the  practice  of  United  States  Steel  Corporation 
(treating  the  matter  as  if  it  owned  and  operated  the  mills 
of  its  subsidiaries)  in  charging  higher  prices  for  its  products 
in  the  Chicago  district  than  it  charges  in  the  Pittsburgh 
district  is  in  violation  of  section  2  of  the  Clayton  Act.  For 
the  reason  stated  in  Subdi\'ision  V  hereof,  the  decision  of 
this  question  will  vitally  affect  the  st^el  manufacturers  whose 
mills  are  in  other  districts  and  the  steel  trade  and  business 
generally. 

Ill 

If  the  practice  complained  of  be  declared  a  violation  of 
section  2  of  the  Clayton  Act  the  effect  would  be  to  prevent 
a  manufacturer  from  taking  advantage  of  the  favorable 
location  of  his  mills  with  respect  to  his  competitors  and  the 
operation  of  the  law  of  supply  and  demand,  to  fix  prices  and 
to  restrain  rather  than  prcunote  competition. 

It  seems  too  clear  for  argument  that  a  manufacturer 
whose  only  mill  is  in  the  Chicago  district  is  free  to  charge 
any  price  he  can  obtain  under  the  competitive  conditions 
prevailing  in  that  district,  even  though  his  profit  be  larger 
than  that  of  the  manufacturer  in  the  Pittsburgh  district 
who  sells  his  product  in  that  district  or  in  ttie  Chicago 
district,  provided,  of  course,  that  the  effect  of  any  discrim- 
ination in  price  (if  it  shall  not  be  within  the  exceptions  stated 
in  section  2  of  the  Clayton  Act)  may  not  be  substantially  to 
lessen  competition  or  to  tend  to  create  a  monopoly.  Pre- 
sumably the  purpose  of  the  manufacturer  in  locating  his  mill 
in  the  Chicago  district  was  to  gain  an  advantage  over  the 
manufacturer  whose  mills  were  located  in  the  Pittsburgh 
district  or  elsewhere  at  a  considerable  distance  from  Chicago 
and  who  in  making  prices  for  the  Chicago  district  has  to 
consider  the  item  of  freight. 

It  is  equally  clear  that  the  manufacturer  whose  mill  is 
in  the  Pittsburgh  district  is  free  to  make  anj'-  price  ihal  may 


PRICE  POLICIES  331 

be  necessarj'  to  effect  the  sale  of  his  products  in  the  Chicago 
district  under  the  competitive  conditions  prevaiUng  in  that 
district,  even  though  that  price,  less  the  freight  from  Pitts- 
burgh to  Chicago,  be  lower  than  his  Pittsburgh  price, 
because  the  effect  of  such  sales  can  hardly  be  to  lessen  com- 
petition or  to  tend  to  create  a  monopoly.  He  is  certainly 
free  to  make  any  reduction  in  price  necessary  to  meet  the 
competition  of  the  manufacturers  in  the  Chicago  district; 
otherwise,  there  W'ould  be  a  restriction  of  competition  and 
the  manufacturers  having  mills  in  the  Chicago  district  would 
have  an  unfair  advantage. 

The  same  results  should  follow  in  the  case  of  a  manufac- 
turer who  has  plants  in  both  the  Pittsburgh  district  and  the 
Chicago  district.  Such  manufacturer  should  be  free  to 
secure  for  the  products  of  his  mill  in  the  Chicago  district 
the  best  prices  obtainable  under  the  competitive  conditions 
in  that  district,  even  though  the  products  of  his  mill  in  the 
Chicago  district  are  sold  at  higher  prices  and  at  better  profit 
than  the  products  of  his  Pittsburgh  mills  marketed  in  the 
Pittsburgh  district. 


It  thus  appears  that  the  difficulty  which  the  Chicago 
district  fabricators  experience  in  doing  business  outside  of 
their  own  territory  is  due  not  to  the  effect  of  the  use  of  the 
Pittsburgh  base  in  quoting  prices  or  to  any  discrimination  in 
price  on  the  part  of  the  manufacturers  against  the  Chicago 
district,  but  to  the  fact  that  their  fabricating  plants  are 
located  in  the  Chicago  district,  which  does  not  produce 
enough  steel  to  supply  their  demands,  and  the  fact  that 
steel  shipped  from  Pittsburgh  (from  which  a  very  large 
part  of  the  steel  consumed  in  the  Chicago  district  must 
come)  costs  in  the  Chicago  district  several  dollars  more  per 
ton  to  the  manufacturers  than  steel  produced  at  mills  in 
the  Chicago  district.  Such  fabricators  are  able  to  compete 
in  the  Chicago  district  on  somewhat  better  than  equal 
terms  with  the  eastern  fabricators,  because  the  freight  rate 
paid  by  the  eastern  fabricators  upon  their  finished  product 
from  their  mills  to  points  in  the  Chicago  district  is  higher 
than  the  freight  rate  paid  by  the  Chicago  fabricators  on  the 
steel  which  enters  into  their  finished  product 


A  prohibition  against  taking  advantage  of  a  favorable 
location  could  not  be  limited  to  United  States  Steel  Cor- 
poration in  respect  of  the  mills  of  its  subsidiaries  in  the 
Chicago  district,  and  if  it  should  be  decided  that  none  of  the 


332  MARKETING  PROBLEMS 

manufacturers  in  that  district  can  be  allowed  to  take  advan- 
tage of  their  favorable  location  or,  in  orther  words,  that 
the  operation  of  the  law  of  supply  and  demand  must  be 
restricted,  then  similar  applications  by  consumers  of  steel 
in  other  districts  would  inevitably  follow  with  similar  deci- 
sions, and  similar  confusion  and  disturbance  would  result 
all  over  the  country. 

This  precedent,  once  established,  could  not  be  limited 
in  its  application  to  manufacturers  of  iron  and  steel,  but  on 
applications  which  would  surely  be  made  by  consumers  of 
other  products  would  necessarily  have  to  be  applied  to  other 
manufacturers,  with  the  result  that  the  natural  laws  upon 
which  business  has  been  founded  since  the  beginning  of 
civilization  would  be  upset.  The  effect  of  such  a  decision 
would  be  far-reaching.  The  advantages  which  induce  in- 
vestments in  plants  being  negatived,  loss  of  such  investments 
to  a  considerable  extent  at  least  would  follow  and  business 
chaos  might  well  be  expected. 

Aside  from  any  question  of  the  legality  of  the 
system  and  of  methods  of  quoting  prices,  have  the 
manufacturers  of  rolled  steel  products  justified  the 
continuance  of  the  Pittsburgh  basing-point  system  as 
a  matter  of  business  pohcy? 


202.  Cairo  Accessory  Company — ^Price  Policy 

The  Cairo  Accessory  Company  has  been  organized 
by  two  young  men  for  the  manufacture  of  a  new  auto- 
mobile accessory.  These  young  men  have  had  some 
experience  in  manufacturing  and  selling,  but  the  capital 
available  for  their  use  is  only  $30,000.  A  large  portion 
of  this  will  be  required  for  establishing  the  plant  and 
for  meeting  current  expenses.  The  product  that  they 
are  to  turn  out  is  patented.  It  can  readily  be  demon- 
strated that  this  product  is  superior  to  similar  products 
already  on  the  market.     It  will  give  better  protection 


PRICE  POLICIES  333 

and  better  service  to  the  automobile  owners  who  install 
it.  It  will  yield  a  substantial  economy  in  expense  to 
automobile  owners. 

It  is  estimated  that  the  article  can  be  manufactured 
at  a  cost  of  $4.75  for  materials,  labor,  and  other  manu- 
facturing expenses.  It  is  to  be  sold  to  owners  of  cars. 
It  must  be  attached  by  a  mechanic,  but  it  can  be  put 
on  a  car  in  less  than  an  hour.  The  cost  of  attaching 
probably  will  not  be  more  than  S2.00.  The  accessory 
is  one  that  is  especially  suited  to  small  cars,  although 
it  may  be  applied  to  larger  cars.  There  are  several 
other  articles  in  the  field  that  perform  similar  services. 
These  competitive  articles  sell  at  prices  ranging  from 
$22  to  $30  each.  For  such  accessories  the  retailer's 
gross  profit  ordinarily  is  about  30%  of  his  selling  price, 
and  the  jobber's  gross  profit  is  about  25%  of  his 
selling  price. 

Should  the  Cau-o  Accessory  Company  undertake 
to  sell  its  product  through  the  regular  wholesale  and 
retail  channels?  If  so,  for  what  price  should  the  com- 
pany sell  to  wholesalers?  What  should  be  the  retail 
price  of  the  article? 

Should  the  company  accept  orders  direct  from 
consumers?    If  so,  at  what  price? 


203.  Lake  Garment  Co^^PANY— Cash  Discounts 
The  Lake  Garment  Company  of  New  York,  which 
has  a  reputation  for  good  quality  and  style,  finds  that 
many  of  the  department  stores  to  which  it  sells  insist 
upon  a  5%  to  10%  cash  discount  i.  This  insistence  is 
prompted  in  part  by  the  practice  of  these  stores  in 

» Three  kinds  of  discounts  are  in  common  ilsc — cash  discounts, 
trade  discounts,  and  quantity  discounts.  A  cash  discount  is  a  discount 
given  to  customers  for  the  prompt  payment  of  bills.  In  tlie  wholesale 
grocery  trade,  for  example,  the  customary  terms  are  2 /o— 10  days, 


334  MARKETING  PROBLEMS 

charging  merchandise  to  each  department  at  billed 
cost  and  relying  upon  the  cash  discounts  for  protection 
against  unforeseen  losses  or  errors  by  department 
managers  in  pricing  merchandise. 

What  policy  should  this  manufacturer  adopt  in 
quoting  prices  to  the  buyers  from  these  stores? 


204.  Tanager  Breakfast  Food  Company — Quantity 
Discounts 

The  Tanager  Breakfast  Food  Company  sells  its 
product  directly  to  retail  grocers.  The  goods  that  it 
manufactures  are  nationally  advertised.  The  com- 
pany grants  no  quantity  discounts.  The  merchandise 
is  packed  twenty-four  packages  to  a  case.  The  case 
is  the  smallest  unit  of  sale.  These  cases  are  sold  to 
retailers  at  the  same  price  per  case  whether  the  order 
is  for  one  case  or  for  two  hundred  cases,  and  the 
company  pays  the  freight  to  destination. 

Is  the  price  policy  of  this  company  sound? 


net  30  days.  Thus,  if  a  customer  pays  his  bill  within  ten  days  from 
the  date  of  the  invoice,  he  receives  a  discount  of  2%  from  the  face  of 
the  invoice.  A  trade  discount  is  a  discount  from  a  list  price.  A  hard- 
ware manufacturer,  for  example,  may  quote  a  trade  discount  of  50-10-5, 
which  means  a  discount  of  50%  off  the  hst  price,  less  a  second  discount 
of  10%,  less  a  tliird  discount  of  5%  from  the  amount  that  remains  after 
deducting  the  previous  discounts.  This  discount  has  nothing  to  do 
with  the  time  of  payment  or  with  the  quantity  sold.  A  quantity 
discount  is  a  discount  granted  to  a  customer  in  proportion  to  the  size 
of  his  order — the  larger  the  order,  the  greater  the  discount.  This  has 
no  reference  to  the  time  of  payment.  A  cash  discount  ordinarily  is 
granted  on  invoices  for  merchandise  on  which  a  trade  discount  or  a 
quantity  discount  has  been  given. 


PRICE  POLICIES  335 

205.  Avon  Shoe  Manufacturing  Company— Post- 

Datings 

The  Avon  Shoe  Manufacturing  Company  sends 
out  its  salesmen  twice  a  year  to  solicit  orders  from 
retailers.  The  company  manufactures  a  staple  line  of 
men's  shoes  that  sell  at  retail  prices  of  S8  to  $10  per 
pair.  For  the  fall  season,  the  salesmen  start  on  the 
road  in  April.  For  the  spring  season,  the  salesmen 
take  out  their  samples  in  October. 

During  the  early  part  of  the  season  the  salesmen 
accept  orders  with  post-datings».  Thus,  a  retailer  may 
order  300  pairs  of  shoes  from  a  salesman  in  May.  The 
order  is  transmitted  to  the  home  office  and  the  goods 
are  manufactured  and  shipped  to  the  retailer,  reaching 
his  store  perhaps  in  July.  The  invoice  for  the  shoes, 
however,  is  dated  August  1.  If  the  retailer  pays  the 
bill  not  later  than  August  10,  he  receives  the  regular 
cash  discount.  The  bill  matures  August  30.  This 
practice  of  giving  post-datings  is  common  in  the  shoe 
trade  and  in  several  other  trades. 

Why  should  the  Avon  Shoe  Manufacturing  Com- 
pany follow  the  policy  of  granting  post-datings? 


206.  Darter  &  Company — Trade  Discounts 

Darter  &  Company  manufacture  all  kinds  of  tire 

bolts  and  similar  products.     In  quoting  prices  a  trade 

discount  system   is   used.     A  standard   price   list   is 

issued   to   retailers   and   wholesalers.    The   salesmen 

» Bureau  of  Business  Research,  Harvard  University,  BulU-linNo.  10, 
Management  Prohlenis  in  Retail  Shoe  Utores,  pp.  17-18.  U.  S.  Depart- 
ment of  Commerce,  Miscellaneous  Scries  No.  34.  The  Mens  tactory- 
Made  Clothing  Industry,  pp.  242-214. 


336  MARKETING  PROBLEMS 

quote  prices  to  wholesalers  at  the  list  price  less  the 
trade  discount,  such  as  60%,  10%,  and  5%  off.  Each 
wholesaler  in  turn  quotes  his  prices  to  retailers  at  the 
list  prices  less  the  trade  discounts  that  he  decides  to 
be  sufficient  to  provide  for  his  normal  rate  of  gross 
profit.  The  retailer  adds  his  normal  mark-up  to  the 
net  cost  of  the  merchandise.  His  retail  selling  price 
thus  does  not  correspond  to  the  list  price.  The  list 
price  merely  serves  as  the  basis  from  which  the  trade 
discounts  are  deducted. 

What  advantages  and  disadvantages  accrue  to 
Darter  &  Company  and  to  their  customers  from  the 
use  of  this  trade  discount  system? 


207.   Dennison  Manufacturing  Company — Trade 
Discounts 

The  following  problem  has  recently  come  before 
the  Dennison  Manufacturing  Company  for  decision. 
The  problem  is  one  of  rearrangement  of  the  discounts 
granted  to  customers. 

The  Dennison  Manufacturing  Company  is  a  well- 
estabhshed  business  with  its  headquarters  and  plant 
located  in  New  England.  Branch  sales  offices  are 
maintained  in  about  thirty  of  the  large  cities  of  this 
country,  Canada,  South  America,  England,  and  Den- 
mark. In  addition  retail  stores  are  maintained  in  four 
of  the  larger  cities  of  the  United  States.  These  retail 
stores  are  estabhshed  primarily  for  promotional  pur- 
poses and  do  not  compete  to  any  substantial  degree 
with  the  retailers  carrying  the  company's  products. 

The  company  manufactures  a  varied  list  of  paper 
products,  such  as  shipping  tags,  marking  tags,  gummed 
labels,  crepe  paper  products,  jewellers'  cases,  boxes, 


PRICE  POLICIES  337 

and  findings.  Although  the  company  sells  a  large 
quantity  of  special  goods  direct  to  consumers,  this 
problem  is  concerned  with  their  regular  stock  goods. 
In  these  regular  stock  goods  there  are  approximately 
8,000  items.  Most  of  these  items  are  used  by  the 
ultimate  consumer  in  small  quantities,  and  the  unit 
value  is  small.  Consequently  they  are  distributed 
largely  through  retailers. 

These  stock  lines  are  catalogued  and  priced  by  the 
unit  and  in  many  cases  also  by  the  carton,  containing 
six,  ten,  twelve,  or  more  units.  The  retail  price  given 
in  the  company's  catalogue  is  quite  generally  observed 
by  the  retail  trade  except  in  the  Far  West  where  high 
freight  rates  make  it  necessary  to  charge  a  higher 
retail  price.  The  intention  of  the  company  is  that 
the  consumer  who  buys  from  the  retail  merchant  shall 
pay  the  price  which  is  stated  in  the  catalogue.  When 
the  goods  are  boxed  in  cartons  containing  more  than 
one  unit,  the  price  stated  for  the  carton  is  called  the 
list  price,  and  the  consumer  purchasing  a  whole  carton 
would  be  given  this  list  price  by  the  dealer.  When 
goods  are  sold  in  less  than  carton  lots,  the  unit  price 
is  slightly  higher  than  the  price  per  unit  in  carton  lots. 
From  the  retail  price  or  from  the  carton  or  list  price, 
when  that  exists,  the  discounts  to  the  trade  are  figured. 

The  wholesale  stationer  who  can  handle  practically 
everything  that  the  company  makes  receives  a  dis- 
count of  40%  from  the  list  price  provided  he  sells  not 
less  than  $200  worth  of  merchandise  in  a  calendar 
year.  Under  certain  conditions  he  may  also  receive 
in  addition  certain  quantity  discounts.  The  minimum 
of  $200  is  a  nominal  amount  and  is  established  merely 
as  a  guarantee  of  good  faith  on  the  part  of  the  wholesaler. 

A  large  portion  of  the  company's  sales  of  stock 
goods  are  made  direct  to  retailers  through  the  com- 
pany's travelling  salesmen.  A  substantial  number  of 
these  retailers  also  carry  on  a  wholesale  business,  whole- 
saling to  smaller  retailers. 

A  retailer  who  sells  $500  worth  or  more  of  the  com- 
pany's products  a  year  receives  a  discount  of  40%, 
the  same  as  the  wholesaler.    To  those  retailers  selling 


338  MARKETING  PROBLEMS 

less  than  $500  a  year,  a  discount  of  30%  from  the  list 
price  is  given.  Under  certain  circumstances  the 
retailer,  just  as  the  wholesaler,  may  receive  quantity 
discounts,  regardless  of  the  annual  purchases.  Two- 
thirds  of  the  sales  of  stock  goods  are  made  to  retailers 
who  receive  the  40%  discount.  Out  of  10,000  dealers 
who  carry  the  Dennison  goods,  something  over  2,000 
are  in  the  40%  class,  and  their  purchases  average  about 
$1,500  a  year. 

The  company's  salesmen  call  on  dealers  in  towns  of 
25,000  population  and  up.  Small  purchases  by  dealers 
in  these  towns,  however,  are  usually  made  from  whole- 
salers because  of  the  saving  in  freight.  All  the  goods 
are  shipped  from  the  company's  factory  and  the  buyer 
pays  the  freight. 

Numerous  objections  have  been  raised  to  this  dis- 
count plan.  In  the  first  place,  it  has  been  suggested 
that  there  is  an  element  of  unfairness  in  having  the 
amount  of  the  dealer's  profit  depend  on  the  quantity 
of  goods  which  he  sells  for  the  company.  Nevertheless, 
the  requirement  of  $200  a  year  for  the  wholesaler  and 
$500  for  the  retailer  is  well  within  the  reach  of  those 
of  the  trade  who  take  sufficient  interest  to  give  the 
line  adequate  display  and  promotive  attention. 

Again,  while  it  is  the  company's  intention  immedi- 
ately to  advance  the  discount  when  a  wholesaler  or 
retailer  reaches  the  minimum  requirement,  it  is  often 
difficult  with  10,000  accounts  to  put  the  increased 
discount  into  effect  as  soon  as  the  merchant  is  entitled 
to  it.  If  the  company  fails  to  make  this  change  at 
once,  its  oversight  is  resented  by  the  merchant. 

There  are  also  frequent  occasions  where  a  merchant 
reaches  $500  in  sales  one  year  only  to  fall  below  that 
amount  the  next  year,  thereby  reducing  his  discount 
in  the  third  year.  After  a  dealer  is  once  placed  in  the 
$500  class,  he  remains  there  until  for  one  calendar  year 
he  has  fallen  below  that  limit.  Reductions  in  the  dis- 
count, however,  are  fairly  frequent  owing  to  the  fluc- 
tuations in  a  merchant's  business  and  also  because  a 
merchant  may  go  over  the  minimum  in  one  year  due 
to  an  ijnusually  large  order  for  Dennison  goods  that 


PRICE  POLICIES  339 

he  may  have  received  from  one  of  his  customers,  as, 
for  example,  from  some  government  agencj'^  or  from 
a  railroad  company. 

One  object  of  the  high  discount  is  to  reward  the 
merchant  who  takes  an  interest  in  this  line,  and  it  is 
naturally  desirable  from  one  standpoint  to  hold  forth 
the  inducement  of  the  high  discount  as  an  incentive 
to  the  merchant  who  has  not  yet  attained  it.  It  has 
been  found,  however,  that  this  stimulus  is  rather  dan- 
gerous as  it  may  encourage  a  merchant  just  under  the 
line  to  pad  his  orders  near  the  end  of  the  year  in  order 
to  go  over  the  SoOO  mark.  Having  padded  his  orders 
in  one  year  he  inevitably  runs  the  risk  of  requiring  less 
goods  the  next  year  and  thus  may  fall  below  the 
minimum  amount. 

Friction  is  also  encountered  with  the  merchant  who 
may  have  failed  to  reach  the  minimum  by  only  a  few 
dollars  and  who  claims  that  an  injustice  is  being  done 
to  him  when  he  was  so  near  the  mark.  This  difficulty 
has  been  particularly  pronounced  during  the  period  of 
unusually  heavy  demand  and  the  shortage  of  many 
items.  Under  these  conditions  the  company  has  fre- 
quently been  unable  to  ship  to  a  merchant  all  the 
goods  he  ordered.  Consequently  the  merchant  has 
claimed  that  if  the  company  had  made  shipments  to 
him  in  accordance  with  his  orders,  he  would  have  been 
well  over  the  SoOO  line. 

The  company  is  embarrassed  also  when  it  comes  to 
opening  an  account  with  a  new  customer.  He  may  be 
in  prospect  a  promising  40%  account;  perhaps  he 
already  has  a  large  established  business;  or  he  may 
just  be  starting  a  business  of  his  own  on  an  unusually 
large  scale  because  of  experience  that  he  has  had  in 
some  large  store. 

Such  a  merchant  believes  that  he  is  entitled  to  the 
40%  discount  because  of  the  future  possibilities  of  his 
business.  In  many  of  these  cases  the  company  would 
prefer  to  give  the  man  as  great  an  inducement  as 
possible  to  put  in  a  full  line  of  goods  if  it  could  be  done 
without  breaking  down  the  established  custom. 

In  the  last  few  years  there  has  been  a  rapid  advance 


340  MARKETING  PROBLEMS 

in  prices  and  $500  worth  of  merchandise  represents 
much  less  in  bulk  than  it  did  in  1914.  Consequently, 
by  virtue  of  these  high  prices,  many  dealers  are  coming 
into  the  40%  class.  If  prices  and  the  volume  of  sales 
go  back  to  a  more  normal  level,  some  of  these  merchants 
will  again  drop  into  the  lower  class. 

The  company  is  also  troubled  from  time  to  time 
with  the  pooling  of  orders  whereby  two  or  more  small 
dealers  entitled  only  to  30%  discount  combine  in 
ordering  their  goods  in  order  to  get  over  the  $500  mark. 
The  company  cannot  stop  this  abuse  provided  the 
combination  of  dealers  has  the  goods  shipped  and 
billed  to  one  address.  The  company  does  decline  to 
grant  the  discount  if  such  dealers  ask  to  have  the 
goods  shipped  or  billed  to  more  than  one  place. 

One  of  the  suggestions  that  has  been  made  for  the 
solution  of  this  problem  is  to  give  the  entire  trade,  both 
wholesalers  and  retailers,  the  discount  of  40%.  This 
would  be  objected  to  by  the  wholesaler  as  cutting  off 
his  trade  with  the  smaller  retailers.  The  wholesaler 
now  sells  to  the  smaller  stores  in  urban  districts  and 
especially  to  the  stores  in  the  rural  districts  and 
small  towns. 

Another  suggestion  has  been  to  eliminate  the  mini- 
mum sales  requirement,  to  give  to  retailers  40%  off 
and  an  extra  10%  discount  to  wholesalers.  One  of 
the  drawbacks  to  this  plan  is  that  numerous  retailers 
are  also  wholesalers.  They  would  immediately  claim 
the  extra  discount,  and  it  would  not  be  long  before 
other  large  retailers  would  be  demanding  the  same 
discount  as  their  competitors.  The  company  also  fears 
that  the  introduction  of  the  extra  10%  discoimt  to 
wholesalers  who  are  also  retailers  would  result  in  price 
cutting. 

Should  the  Dennison  Manufacturing  Company 
revise  this  discount  plan?    If  so,  how? 


PRICE  POLICIES  341 

208.    WiNDEEMERE    DrY    GoODS    CoMPANY — VARYING 

Prices 

The  Windermere  Dry  Goods  Company  conducts  a 
wholesale  dry  goods  business.  Its  annual  sales  are 
approximately  $1,200,000.  The  temtory  of  this  com- 
pany is  divided  into  three  classes,  city,  suburban,  and 
country.  The  city  trade  is  that  primarily  within  a 
few  miles  of  the  warehouse.  The  suburban  trade 
includes  the  territory  outside  the  city  district  but 
within  25  or  30  miles  of  the  warehouse,  and  the  country 
trade  is  the  more  remote  district. 

Each  salesman  in  the  city  district  has  a  drawing 
account,  which  is  credited  with  25%  of  the  gross  profit 
on  his  sales.  The  drawing  account  of  each  salesman 
in  the  suburban  district  is  credited  with  30%  of  the 
gross  profit  on  his  sales.  The  drawing  account  of 
each  salesman  in  the  country  trade  is  credited  with 
40%  of  the  gross  profit  on  his  sales.  The  drawing 
accounts  of  these  salesmen  cover  both  salaries  and 
traveling  expenses. 

The  gross  profit  on  sales  is  figured  on  the  cost  of 
the  goods  delivered  at  the  warehouse  at  current  market 
prices.  Salesmen  are  not  given  the  benefit  of  an  in- 
crease in  the  value  of  merchandise  on  hand,  nor  is 
their  gross  profit  cut  down  by  a  decline  in  the  market 
value  of  goods  that  they  sell.  Allowances  to  customers 
and  cash  discounts  taken  by  customers  are  deducted 
from  the  sales  before  gi'oss  profit  is  determined.  At 
the  end  of  each  year  the  ratio  of  losses  from  bad  debts 
to  sales  is  worked  out  and  this  percentage  is  deducted 
from  the  sales  of  each  salesman  before  determining 
the  gross  profit  on  which  the  commission  is  paid. 

The  salesmen  are  given  price  limits  on  each  article, 
a  minimum  and  a  maximum  price.  Within  these  price 
limits  the  salesman  may  use  his  own  discretion  in  vary- 
ing the  price  for  bargaining  with  customers.  These 
variations  are  made  irrespective  of  the  quantity  of 
merchandise  sold  on  each  order.  Numerous  competi- 
tors, but  not  all  competitors,  follow  the  same  plan  of 
using  price  limits. 


342  MARKETING  PROBLEMS 

Should  the  Windermere  Dry  Goods  Company  con- 
tinue to  adhere  to  this  policy  of  permitting  salesmen 
to  vary  prices  or  should  it  adopt  a  one-price  policy  for 
each  territory?^ 


209.    MORNINGSIDE   NoVELTY   COMPANY — PrICE 

Policy 

The  Morningside  Novelty  Company  of  New  York 
City  sells  its  products,  which  include  novelties,  silver- 
ware, and  similar  goods,  exclusively  by  mail.  Up  to 
the  present  time  its  products  have  been  Hsted  in  the 
company's  catalogue  at  even  prices — fifty  cents, 
seventy-five  cents,  one  dollar,  and  so  on.  Inasmuch 
as  costs  of  material  and  labor  have  been  subject  to 
frequent  change  during  the  last  few  years,  it  often- 
times has  been  necessary  to  change  the  prices  in  the 
catalogue. 

In  its  next  revision  of  catalogue  prices,  should  the 
Morningside  Novelty  Company  modify  its  policy  and 
quote  at  least  some  of  its  prices  in  odd  figures,  such  as 
sixty-four  cents  and  eighty-two  cents? 


*For  a  statement  regarding  similar  practices  in  the  wholesale 
Grocery  trade,  see  Bureau  of  Business  Research,  Harvard  University, 
Bulletin  No.  14,  Methods  of  Paying  Salesmen  and  Operating  Expenses 
in  the  Wholesale  Grocery  Business  in  1918,  pp.  14-15. 


PRICE  POLICIES  343 

210.  Berkshire  Piano  Company — Grades  of 
Product 

The  Berkshire  Piano  Company  manufactures  an 
exceptionally  high  grade  of  pianos.  The  volume  of  its 
sales  is  small  in  comparison  with  the  volume  of  numer- 
ous other  manufacturers.  The  company  confines  its 
output  to  a  single  grade  of  high  quality.  Suggestions 
frequently  have  been  made  that  a  cheaper  type  of 
piano  also  should  be  manufactured  by  this  company  in 
order  to  increase  the  volume  of  sales.  The  financial 
resources  of  the  company  are  adequate,  and  plant 
facilities  could  readily  be  increased,  provided  the  com- 
pany felt  that  this  change  in  policy  were  desirable. 
Up  to  the  present  time,  however,  the  company  has 
adhered  steadfastly  to  this  policy  of  producing  but  a 
single  class  of  product. 

Is  this  pohcy  sound  from  the  sales  standpoint? 


211.  Beaver  Hat  Company — Price  Policy 

The  Beaver  Hat  Company,  manufacturer  of  men's 
felt  hats  retailing  at  $7,  distributes  its  product  through 
men's  furnishing  stores  which  have  exclusive  agencies. 
These  are  the  only  felt  hats  sold  in  these  stores.  Prior 
to  the  last  year  any  hats  that  could  not  be  sold  at  the 
regular  price  were  returned  by  the  retailers  to  the 
Beaver  Hat  Company,  which  disposed  of  them  in  job 
lots  at  points  remote  from  the  agencies.  During  the 
last  year,  however,  the  Beaver  Hat  Company  has  per- 
mitted the  retail  agents  to  have  clearance  sales  of  their 
surplus  stocks  of  hats  at  the  end  of  each  season.  At 
these  sales  the  $7  hats  have  been  sold  at  $5.45. 

The  manufacturer  now  proposes  to  manufacture 
hats  regularly  to  be  sold  at  this  lower  price.     Although 


344  MARKETING  PROBLEMS 

these  hats  will  be  at  least  equal  in  quality  to  other  $6 
brands,  they  must  be  made  more  cheaply  than  the 
$7  hats  and  will  therefore  be  of  lower  grade.  They 
will  bear  the  manufacturer's  brand  but  no  price  mark. 
The  exclusive  agency  system  is  to  be  maintained  and 
the  $7  line  is  to  continue  as  the  main  line  of  hats  sold 
by  these  stores.  The  surplus  stocks  of  $7  hats  will  be 
sold  at  $5.45  as  during  the  past  year  but  the  grade 
made  to  sell  at  $5.45  will  be  utilized  to  supplement 
those  stocks  in  special  ''sales"  which  will  be  held  more 
frequently  by  the  retailers. 

What  are  the  advantages  and  disadvantages  of  this 
new  policy  from  the  point  of  view  of  the  retailers? 
From  the  point  of  view  of  the  Beaver  Hat  Company? 


212.  Shamrock  Storage  Battery  Company — Price 

Policy 

School  of  Business  Administration 
Harvard  University, 
Cambridge,  Mass. 
Gentlemen : 

We  are  the  distributors  and  service  station  for  the 
Prest-0-Lite  Storage  Battery  for  this  city  and  territory 
directly  tributary  thereto. 

The  storage  battery  is  standard  equipment  for  thirty- 
three  makes  of  automobiles,  twenty  of  which  are  represented 
in  this  city.  These  include,  for  instance,  the  Oakland  car, 
of  which  there  are  more  than  five  hundred  in  this  county 
alone,  the  Maxwell  car,  of  which  there  are  more  than  six 
hundred  in  the  city,  the  Cole,  National,  Chalmers,  Chandler, 
and  others. 

We  are  able  to  procure  a  list  of  all  automobile  licenses, 
the  names  and  addresses  of  all  owners,  make  of  car.  This 
makes  direct  circularizing  very  convenient. 

The  problem  with  us  here,  as  I  have  also  noticed  at 
other  places,  is  that  we  seldom  sell  direct  to  consumer,  or  at 
consumer's  prices,  thereby  not  making  the  larger  profit  for 
ourselves. 


PRICE  POLICIES  345 

There  are  many  dealers  handling  a  line  of  cars,  also 
proprietors  of  garages  and  automobile  repair  shops,  in  every 
city  who  do  not  carry  a  stock  of  storage  batteries  on  their 
shelves  and  who  therefore  have  no  money  whatsoever 
invested,  but  who  expect  and  are  receiving  large  discounts 
from  distributors  and  service  stations,  like  ourselves,  on 
new  batteries  and  repairs.  But  at  this  time  I  wish  only  to 
take  up  the  problem  of  consumer's  business  on  new  batteries. 
For  instance,  the  consumer's  price  on  our  battery  is  100%; 
to  dealers  as  mentioned  above  the  price  is  25%  off.  There- 
fore, if  the  product  sells  at  $50,  the  dealer's  profit  is  $12.50. 
If  the  actual  cost  to  us,  including  only  freight  and  drayage, 
is  50%  off  hst  price,  our  per  cent  of  profit  is  12.5%,  out  of 
which  we  must  pay  all  overhead,  protect  the  guarantee,  and 
give  a  certain  amount  of  free  service. 

I  also  find  that  in  many  instances  the  dealer,  as  men- 
tioned above,  will  sell  batteries  to  his  friends  or  customers, 
to  appease  some  ill  feeling  with  this  customer,  at  our  price 
to  him  (25%  off) ;  in  other  cases  he  splits  his  discount  with 
his  customers. 

It  would  probably  be  better  to  give  the  consumer  a 
slightly  lower  price  than  to  divide  the  profits  equally  with 
our  dealers,  who  are  using  us  as  a  convenience. 

Would  it  be  the  proper  thing  to  cut  our  discounts  to 
dealers  to  a  minimum,  regulated  through  an  a.ssociation, 
considering  at  the  same  time  the  fact  that  our  buying  prices 
are  lower  than  some  of  our  competitors  but  somewhat  higher 
than  the  prices  obtained  by  other  competitors.  In  the 
latter  cases,  the  list  price  of  the  product  is  higher  and  the 
product  is  not  so  satisfactory. 

Can  you  outline  a  program,  from  the  information  I  have 
given  you,  that  will  remedy  the  situation? 
Yours  veiy  truly, 
(signed)     The  Shamrock  Storage  Battery  Company 


346  MARKETING  PROBLEMS 

213.  Harvard  Bureau  of  Business  Research — 
Price  Policy 

New  York,  September  15,  1919. 
Harvard  Bureau  of  Business  Research, 
Harvard  University, 
Cambridge,  Mass. 
Gentlemen : 

Noting  from  the  trade  papers  that  you  have  issued  a 
very  interesting  and  valuable  bulletin  covering  your  more 
recent  investigations  into  the  cost  of  retailing  groceries, 
known  as  Bulletin  No.  13,  as  we  understand  it,  we  would 
appreciate  very  much  receiving  a  copy  thereof. 

In  fact,  we  would  like  to  have  one  hundred  copies  for 
distribution  with  our  sales  organization,  and  will  be  very 
pleased  to  remit  your  usual  price  for  this  material  if  you 
customarily  sell  it  to  manufacturers  interested  in  food 
distribution  products. 

We  attach  a  copy  of  one  of  our  recent  circulars  to  retail 
merchants,  which  may  be  of  interest  to  you  and  which  will 
at  least  indicate  the  study  we  are  giving  to  this  question  of 
economy  in  distribution,  which  to  our  mind  can  be  more 
greatly  promoted  through  a  better  organization  of  cooper- 
ative or  trade  service  than  through  the  individual  of  the 
average  community  undertaking  to  perform  this  specialized 
and  daily  service  without  the  benefit  of  adequate  equipment 
or  decreased  cost  through  the  element  of  cooperation. 

We  are  very  much  interested  indeed  in  the  reports  we 
have  seen  of  your  new  Bulletin  No.  13,  and  trust  we  may 
receive  the  one  hundred  copies  desired,  or  at  least  a  copy  for 
our  own  use  if  it  is  not  possible  for  you  to  furnish  us  the 
quantity,  for  which  we  will  be  pleased  to  remit  upon  receipt 
of  invoice  to  cover. 

Yours  very  truly, 

WYANDOTTE  COMPANY 
(signed)     J.  K.  Heatherwood, 

Manager. 

(This  company  manufactures  a  well-known  food 
product  that  is  nationally  advertised.) 

Cambridge,  Mass., 
September  22,  1919. 
Mr.  J.  K.  Heatherwood,  Manager, 
Wyandotte  Company, 
New  York  City. 
Dear  Sir : 

Your  letter  of  September  1.5th  has  been  received. 

We  are  today  sending  you  by  American  Express,  charges 


PRICE  POLICIES  347 

collect,  one  hundred  copies  of  our  new  grocery  bulletin. 
Our  bill  for  SlOO  is  enclosed. 

We  are  always  glad  to  supply  manufacturers  with  copies 
of  our  bulletins  for  their  salesmen  but  we  have  found  it  best 
to  limit  the  bulk  shipments  to  this  purpose.  Distribution 
to  the  retail  trade  through  any  office  other  than  our  own 
makes  it  more  difficult  for  us  to  get  in  touch  with  the  grocers 
who  can  cooperate  and  consequently  retards  the  extension 
of  our  research  work. 

We  greatly  appreciate  your  interest,  and  we  shall  be 
glad  to  hear  from  you  at  any  time,  if  there  is  any  further 
information  that  we  can  give  you. 

Yours  very  truly, 
(signed)     BUREAU  OF  BUSINESS  RESEARCH 

New  York, 
October  1,  1919. 
Bureau  of  Business  Research, 
Harvard  University, 
Cambridge,  Mass. 
Dear  Sirs: 

Yours  of  the  22nd  received,  also  your  invoice  of  the 
same  date  for  SlOO,  covering  100  copies  of  your  Bulletin 
No.  13,  shipped  in  accordance  with  our  request  of  September 
15th,  and  we  have  also  just  received  the  bulletins. 

However,  as  this  bulletin  appears  to  be  a  small  pamphlet, 
the  pubhcation  of  which  in  any  reasonable  quantity  would 
probably  not  cost  in  excess  of  5c  each,  and  as  it  has  been 
our  understanding  that  institutions  of  the  character  of 
Harvard,  conducting  research  work  along  these  lines  for 
the  general  educational  good,  and  without  profit  being  the 
primary  idea,  have  been  accustomed  to  make  a  nominal 
charge  to  cover  the  cost  of  printing,  handling,  and  shipping 
such  information  as  is  the  result  of  their  research  work,  we 
are  wondering  whether  there  is  not  an  error  in  this  charge 
of  SLOO  each  for  100  of  these  small  pamphlets  to  be  used 
for  educational  purposes  as  we  contemplate,  and  before 
remitting  we  would  appreciate  your  advice  on  this  point. 
Yours  very  trulv, 
WYANDOTTE  COMPANY, 

(signed)     J.  K.  Heatherwood, 
Manager. 

■^liat  answer  to  this  letter  should  have  been  made 
by  the  Bureau  of  Business  Research? 

The  following  statement  is  quoted  from  a  circular  issued 
by  the  Bureau  of  Business  Research: 

The  Bureau  was  established  in  1911  to  gather  reliable,  up-to-date 
information    regarding    evcry-day    business    methods    and    problems. 


348  MARKETING  PROBLEMS 

While  this  information  is  sought  primarily  for  teaching  purposes  in 
the  Graduate  School  of  Business  Administration,  Harvard  University, 
in  practice  it  has  proved  to  have  a  direct  commercial  value. 

The  results  of  this  research  are  furnished  without  charge  to  mer- 
chants who  cooperate  in  their  preparation  by  sending  in  reports  from 
their  business.  Because  of  the  interest  that  has  been  shown,  these 
bulletins  have  also  been  made  available  at  the  stated  prices  to  other 
business  men.  The  receipts  from  the  sale  of  these  bulletins,  it  may 
be  added,  are  used  solely  to  cover  a  portion  of  the  expense  of  collecting 
and  summarizing  the  data  that  are  published. 


214.   Squantum  Paper  Company — Export  Orders 

The  Squantum  Paper  Company  produces  paper 
that  is  used  in  the  job-printing  industry.  The  bulk  of 
the  company's  output  is  sold  in  the  domestic  market, 
but  it  also  has  some  export  trade. 

Early  in  1920,  the  Squantum  Paper  Company 
received  an  order  from  Australia.  This  order,  which 
was  not  large,  was  the  first  one  that  had  been  received 
from  this  Australian  firm.  The  paper  on  this  order 
was  to  be  delivered  under  the  manufacturer's  trade- 
mark. 

The  Squantum  Paper  Company  accepted  the  order 
and  immediately  the  Australian  firm  doubled  the 
order  at  the  same  price. 

For  domestic  trade  the  Squantum  Paper  Company 
has  a  policy  that  it  will  accept  orders  at  quoted  prices 
only  for  deliveries  from  stock  or  for  deliveries  within 
a  period  not  exceeding  two  months.  For  deliveries 
later  than  two  months,  orders  are  accepted  only  on 
condition  that  the  price  shall  be  determined  by  the 
manufacturer  at  time  of  delivery.  This  policy  had 
not  been  explained  to  the  Australian  firm  at  the  time 
the  original  order  was  accepted. 

The  Australian  firm  insisted  that  the  acceptance 
of  the  initial  order  amounted  to  giving  it  the  represen- 


PRICE  POLICIES  349 

tation  for  the  line.  Hence  it  asserted  that  the  Squan- 
tum  Paper  Company  had  at  least  a  moral  obUgation 
to  provide  an  adequate  suply  and  to  permit  the  initial 
order  to  be  doubled  at  the  quoted  price. 

What  policy  should  the  Squantum  Paper  Company 
have  adopted? 


215.  Peteks  &  Company — Resale  Price 
Maintenance 

By  a  series  of  decisions  of  the  Supreme  Court  of 
the  United  States,  the  right  to  maintain  resale  prices 
has  been  denied  to  manufacturers.^  In  1907,  the 
Supreme  Court  in  the  case  of  Dobbs-IMerrill  Company 
versus  Straus  denied  the  right  of  the  publisher  to  main- 
tain the  resale  price  of  a  copyrighted  book.  In  1911, 
in  the  case  of  Dr.  Miles  Medical  Company  versus  Park 
&  Sons  Company,  the  Court  held  that  an  attempt  to 
fix  resale  prices  on  articles  of  general  use,  except  those 
produced  under  patents  or  other  statutory  grants,  was 
against  public  policy  and  void.  In  1913,  in  the  case 
of  Bauer  Chemical  Company  versus  James  O'Donnell, 
the  Court  denied  the  right  of  a  manufacturer  of  a 
patented  article  to  limit  the  price  by  notice  at  which 
future  retail  sales  of  the  article  were  to  be  made.  This 
was  the  so-called  Sanotogen  case.  The  Court  ruled 
that  the  ownership  of  a  grant  or  patent  did  not  give 
to  the  patentee  the  right  to  impose  upon  the  purchaser 

*  References  on  resale  price  maintenance:  P.  T.  Cherington, 
Advertising  as  a  Business  Force.  Chamber  of  Commerce  of  the  United 
States,  Report  of  the  Special  Committee  on  Maintenance  of  Resale  Prices, 
1916.  Boston  Chamber  of  Commerce,  Referendum  on  Maintenance 
of  Resale  Prices,  May  8,  1916.  F.  W.  Taussig,  Price  Maintenance 
American  Economic  Review,  Supplement,  March,  1916.  E.  S.  Rogers, 
Predatory  Price  Cutting  as  Unfair  Trade,  Harvard  Law  Review, 
December,  1913.     Printers'  Ink. 


350  MARKETING  PROBLEMS 

of  his  goods  any  obligation,  after  such  purchase  had 
been  made,  to  sell  such  goods  only  at  the  price  named 
by  the  patentee.  The  essence  of  this  decision,  taken 
together  with  several  supplementary  decisions  during 
the  next  two  years,  was  that  if  a  manufacturer  has 
parted  with  the  title  to  his  product  he  cannot  control 
the  re-sale  price,  whether  the  article  be  patented  or  not. 
Several  bills  have  been  introduced  into  Congress 
to  grant  manufacturers  the  privilege,  under  certain 
conditions,  of  maintaining  resale  prices.  One  of  these 
bills  was  the  so-called  Stephens- Ashurst  Bill,  introduced 
in  1915.     This  bills  was  as  follows: 

Be  it  enacted  by  the  Senate  and  House  of  Representatives 
of  the  United  States  of  America  in  Congress  assembled,  That 
in  any  contract  for  the  sale  of  articles  of  commerce  to  any 
dealer,  wholesale  or  retail,  by  any  grower,  producer,  manu- 
facturer, or  owner  thereof,  under  trade-mark  or  special  brand, 
hereinafter  referred  to  as  the  "vendor,"  it  shall  be  lawful 
for  such  vendor,  whenever  the  contract  constitutes  a  trans- 
action of  commerce  among  the  several  States,  or  with  foreign 
nations,  or  in  any  Territory  of  the  United  States,  or  in  the 
District  of  Columbia,  or  between  any  such  Territory  and 
another  Territory,  or  between  any  such  Territory  or  Terri- 
tories and  any  States  or  the  District  of  Columbia,  or  with 
a  foreign  nation  or  nations,  or  between  the  District  of 
Columbia  and  any  State  or  States  or  a  foreign  nation  or 
nations,  to  prescribe  the  uniform  prices  and  manners  of 
settlement  at  which  the  different  qualities  and  quantities  of 
each  article  covered  by  such  contract  may  be  resold:  Pro- 
vided,  That  the  following  conditions  are  complied  with: 

(A)  Such  vendor  shall  not  have  any  monopoly  or  con- 
trol of  the  market  for  articles  belonging  to  the  same  general 
class  of  merchandise  as  such  article  or  articles  of  commerce 
as  shall  be  covered  by  such  contract  of  sale;  nor  shall  such 
vendor  be  a  party  to  any  agreement,  combination,  or  under- 
standing with  any  competitor  in  the  production,  manufac- 
ture, or  sale  of  any  merchandise  in  the  same  general  class  in 
regard  to  the  price  at  which  the  same  shall  be  sold  either  to 
dealers  at  wholesale  or  retail  or  the  public. 

(B)  Such  vendor  shall  file  at  the  office  of  the  Federal 
Trade  Commission  a  statement  setting  forth  the  trade- 
mark or  special  brand  owned  or  claimed  by  such  vendor  in 
respect  of  such  article  or  articles  of  commerce  to  be  covered 
by  such  contract  of  sale,  and  also,  from  time  to  time  as  the 
same  may  be  adopted  or  modified,  a  schedule  setting  forth 
the  uniform  price  of  sale  thereof  to  dealers  at  wholesale  and 


PRICE  POLICIES  351 

the  uniform  price  of  sale  thereof  to  dealers  at  retail,  from 
whatever  source  acquired,  and  the  uniform  price  of  sale 
thereof  to  the  pubHc;  and,  upon  filing  such  statement,  such 
vendor  shall  pay  to  the  Federal  Trade  Commission  a  regis- 
tration fee  of  $10.  Prices  set  forth  in  such  schedule  and 
made  in  any  contract  pursuant  to  the  provisions  of  this 
Act  shall  be  uniform  to  all  dealers  in  like  circumstances, 
differing  only  as  to  grade,  quality,  or  quantity  of  such 
articles  sold,  the  point  of  delivery,  and  the  manner  of  settle- 
ment, all  of  which  differences  shall  be  set  forth  in  such 
schedule;  and  there  shall  be  no  discrimination  in  favor  of 
any  vendee  by  the  allowance  of  a  discount,  rebate,  or  com- 
mission for  any  cause  or  by  grant  of  any  special  concession 
or  by  any  other  device  whatsoever. 

(C)  Such  contracts  for  the  sale  of  such  article  or  articles 
of  commerce  may  provide  for  disposal  sales  at  appropriate 
times,  during  which  periods,  duly  set  forth  in  such  state- 
ment or  in  such  schedule  of  prices  as  shall  be  filed  by  such 
vendor,  such  dealers  may  sell  such  article  or  articles  of  com- 
merce for  a  price  other  than  the  uniform  price  as  set  forth 
in  the  schedule  provided  in  the  preceding  paragraph  (B); 
Provided,  That  such  article  or  articles  of  commerce  shall 
have  first  been  offered  to  the  vendor  by  such  dealer,  by 
written  offer,  at  the  price  paid  for  the  same  by  such  dealer, 
and  that  such  vendor  not  less  than  thirty  days  prior  to  the 
date  set  forth  for  the  next  disposal  sale,  after  reasonable 
opportunity  to  inspect  such  article  or  articles,  shall  have 
refused  or  neglected  to  accept  such  offer. 

(D)  Any  article  of  commerce  or  any  carton,  package, 
or  other  receptacle  inclosing  an  article  or  articles  of  com- 
merce covered  by  such  contract  and  in  the  possession  of  a 
dealer  may  be  sold  for  a  price  other  than  the  uniform  price 
for  resale  by  such  dealer  for  such  quality  and  quantity  as 
set  forth  in  the  schedule  provided  in  the  preceding  para- 
graph (B) :  First,  if  such  dealer  shall  decide  to  discontinue 
the  sale  of  such  article  or  articles  of  commerce,  or  if  such 
dealer  shall  cease  to  do  business  and  the  sale  is  made  in  the 
course  of  winding  up  the  business  of  such  dealer,  or  if  such 
dealer  shall  have  become  bankrupt  or  a  receiver  of  the  busi- 
ness of  such  dealer  shall  have  been  appointed;  Provided, 
(a)  That  such  article  or  articles  of  commerce  shall  have  first 
been  offered  to  the  vendor  thereof  by  such  dealer  or  the 
legal  representative  of  such  dealer  by  written  offer,  at  the 
price  paid  for  the  same  by  such  dealer,  and  that  such  vendor 
after  reasonable  opportunity  to  inspect  such  article  or 
articles  shall  have  refused  or  neglected  to  accept  such  offer: 
Provided,  (b)  That  such  dealer,  or  the  legal  representative 
of  such  dealer,  shall  file  at  the  office  of  the  Federal  Trade 
Commission  a  statement  setting  forth  the  reason  for  such 


352  MARKETING  PROBLEMS 

sale,  the  refusal  or  neglect  of  such  vendor  to  accept  such 
offer,  and  the  grade,  quality,  and  quantity  of  such  article 
or  articles  of  commerce  to  be  so  sold;  or,  second,  if  such 
article  of  commerce  or  contents  of  such  carton,  package,  or 
other  receptacle  shall  have  become  damaged,  deteriorated, 
or  soiled:  Provided,  That  such  damaged,  deteriorated,  or 
soiled  article  shall  have  first  been  offered  to  the  vendor  by 
such  dealer  by  written  offer,  at  the  price  paid  for  the  same 
by  such  dealer,  or  at  the  option  of  such  vendor,  in  exchange 
for  similar  articles  not  damaged,  deteriorated,  or  soiled,  and 
that  such  vendor  after  reasonable  opportunity  to  inspect 
such  article  or  articles  shall  have  refused  or  neglected  to 
accept  such  offer,  and  that  such  damaged,  deteriorated,  or 
soiled  article  shall  thereafter  only  be  offered  for  sale  by  such 
dealer  with  prominent  notice  to  the  purchaser  that  such 
article  is  damaged,  deteriorated,  or  soiled,  and  that  the 
price  thereof  is  reduced  because  of  such  damage. 

Sec.  2.  That  the  provisions  of  this  Act  shall  not  apply 
in  cases  of  sales  of  such  article  or  articles  of  commerce  to 
the  United  States,  or  in  cases  of  sales  of  such  articles  to  any 
State  or  public  library,  or  to  any  society  or  institution  incor- 
porated or  established  solely  for  religious,  philosophical, 
educational,  medical,  scientific,  philanthropic,  or  literary 
purposes,  made  in  good  faith  for  use  thereof  by  such  society 
or  institution. 

In  1919,  a  similar  bill  was  introduced  by  Mr.  Kelly. 
The  Kelly  bill  required  that  every  vendor  electing  to 
maintain  resale  prices  in  accordance  with  the  condi- 
tions of  the  bill  must  file  with  the  Federal  Trade  Com- 
mission a  statement  of  his  brand  or  trade-mark  and  a 
schedule  of  the  prices  to  wholesalers,  retailers,  and  the 
public.  The  bill  required  that  prices  should  be  uniform 
to  each  class  of  dealers,  except  for  variations  due  to 
differences  in  grade,  quality  or  quantity  of  the  article 
sold,  the  place  of  dehvery,  and  the  terms  of  settlement. 
All  these  variations  in  prices  must  be  stated  in  the 
schedule  filed  with  the  Federal  Trade  Commission. 

Peters  &  Company  manufacture  tooth  paste  and 
similar  toilet  articles.  Their  products  are  distributed 
through  wholesalers.  The  goods  are  made  to  be  sold 
at  specified  retail  prices,  but  frequently  the  prices  are 
cut.  Before  the  war  the  prices  were  marked  on  the 
merchandise  and  stated  in  the  company 's  advertisements. 

Would  it  be  to  the  advantage  of  this  company  to 


PRICE  POLICIES  353 

encourage  the  enactment  of  legislation  such  as  was 
proposed  in  the  Stephens-Ashurst  and  Kelly  bills? 


216.  Mason  Shoe  Company — Proposed  Legislation 

FOR  Marketing  Retailer's  Cost  Price  on 

Merchandise 

66th  CONGRESS 
1st  Session 

S.  2904 

IN   THE    senate    OF   THE    UNITED    STATES 

August  23  (calendar  day,  August  30),  1919. 

Mr.   Jones  of   Washington  introduced   the   following   bill; 

which  was  read  twice  and  referred  to  the  Committee 

on  Interstate  Commerce. 


A    BILL 

Relating  to  manufactured  articles  intended  for  interstate 
commerce,  and  for  other  purposes. 

Be  it  enacted  in  the  Senate  and  House  of  Representatives 
of  the  United  States  of  America  in  Congress  asse7nbled,  That 
the  manufacturer  of  any  article  produced  after  the  passage 
of  this  Act,  and  intended  to  be  put  in  interstate  commerce, 
shall  plainly  mark  upon  or  attach  to  such  article  the  cost 
thereof. 

Sec.  2.  That  every  retailer  of  any  manufactured  article 
carried  in  interstate  commerce  after  the  passage  of  this  Act 
shall  put  upon  or  attach  to  such  article  l)efore  sold  to  his 
custome  s  in  plain  figures  the  cost  of  such  article  to  him. 

Sec.  3.  That  ihe  Attorney  General  is  authorized  and 
directed  to  make  such  rules  and  regulations  as  he  may  deem 
necessary  to  carry  out  the  provisions  of  this  Act. 

Sec.  4.  That  any  violation  of  any  of  the  provisions  of 
this  Act  shall  be  a  misdemeanor  and  shall  be  punished  by 


354  MARKETING  PROBLEMS 

a  fine  of  not  more  than  $1,000  or  by  imprisonment  for  not 
more  than  one  year,  or  by  both  such  fine  and  imprisonment 
in  the  discretion  of  the  court. 

What  attitude  should  the  president  of  the  Mason 
Shoe  Company  take  toward  this  bill?  The  company 
manufactures  men's  shoes  of  medium  grade.  The 
shoes  are  sold  under  the  manufacturer's  brand  direct 
to  retailers  in  the  national  market. 


BIBLIOGRAPHY 

In  this  bibliography  special  articles  in  periodicals, 
government  bulletins,  and  similar  pamphlets  are  not  listed. 
References  are  made  to  them  in  comiection  with  the  indi- 
vidual problems.  The  following  books  are  tliose  that  are 
of  general  interest  on  the  subject  of  Marketing. 

Brace,  H.  H.,  Organized  Speculation,  Houghton,  Mifflin  & 
Co.,  Boston,  1913. 

Butler,  DeBower,  and  Jones,  Marketing  Methods,  Alexander 
Hamilton  Institute,  New  York,  1914. 

Calkins,  E.  E.,  The  Business  of  Advertising,  D.  Appleton  & 
Company,  New  York,  1915. 

Cherington,  P.  T.,  Advertising  as  a  Business  Force,  Double- 
day,  Page  &  Company,  New  York,  1913. 
Advertising  Book — 1916,  Doubleday,  Page  &  Company, 

New  York,  1916. 
The  Wool  Industry,  A.  W.  Shaw  Company,  Chicago, 
1916. 

Chittick,  James,  Silk  Manufacturing  and  Its  Problems, 
J.  Chittick,  New  York,  1913. 

Clapham,  J.  H.,  Woollen  and  Worsted  Industries,  Methuen 
&  Company,  London,  1907. 

Copeland,  Melvin  T.,  Business  Statistics,  Harvard  Uni- 
versity Press,  Cambridge,  Mass.,  1917. 
The  Cotton  Manufacturing  Industry  of  the  United  States, 
Harvard  University  Press,  Cambridge,  Mass.,  1912. 

Curtis  Publishing  Company,  Selling  Forces,  Philadelphia, 
1913. 

Dondlinger,  P.  T.,  Book  of  Wheat,  Paul,  Trench,  Trubner 
&  Co.,  Ltd.,  London,  1912. 

Douglas,  A.  W.,  Travelling  Salesmanship,  The  Macmillan 
Company,  New  York,  1919. 

Ettinger,  R.  P.,  and  Golieb,  D.  E.,  Credits  and  Collections, 
Prentice-Hall,  Inc.,  New  York,  1917. 

Fisk,  James  W..  Retail  Selling,  Harper  &  Bros.,  New  York, 
1916. 

355 


356  MARKETING  PROBLEMS 

Field,  Clifton  C,  Retail  Buying,  Harper  &  Bros.,  New 
York,  1917. 

Gardner,  E.  H.,  New  Collection  Methods,  Ronald  Press 
Company,  New  York,  1918. 

Hagerty,  J.  E.,  Mercantile  Credit,  H.  Holt  &  Company, 
New  York,  1913. 

Harris,  Emerson  P.,  Cooperation,  the  Hope  of  the  Consumer, 
The  Macmillan  Company,  New  York,  1919. 

Hess,   H.   W.,   Productive  Advertising,   J.   P.   Lippincott 
Company,  Philadelphia,  1915. 

Hollingworth,  H.  L.,  Advertising  and  Selling,  D.  Applet  on 
&  Company,  New  York,  1913. 

Hotchkin,  W.  R.,  Manual  of  Successful  Storekeeping,  Dou- 
bleday,  Page  &  Company,  New  York,  1915. 

Huebner,  G.  G.,  Agricultural  Commerce,  D.  Appleton  & 
Company,  New  York,  1915. 

Jacobstein,  M.,  The  Tobacco  Industry,  Columbia  University 
Press,  New  York,  1907. 

Johnson,  A.  P.,  Library  of  Advertising,  Chicago  University 
of  Commerce,  Chicago,  1913. 

Mahin,  J.  L.,  Advertising — Selling  the  Consumer,  Double- 
day,  Page,  &  Company,  New  York,  1914. 

Nourse,    E.    G.,    Chicago    Produce    Market,    Houghton, 
Mifflin  &  Company,  Boston,  1918. 

Nystrom,  P.  H.,  Economics  of  Retailing,  Ronald  Press, 
New  York,  1915. 
Retail  Store  Management,  LaSalle  Extension  University, 
Chicago,  1917. 

Onthank,    A.    Heath,    The   Tanning   Industry,   National 
Shawmut  Bank,  Boston,  1917. 

Opdycke,  J.  B.,  Advertising  and  Selling  Practice,  A.  W. 
Shaw  Company,  Chicago. 

Powell,  G.  Harold,  Cooperation  in  Agriculture,  The  Mac- 
millan Company,  New  York,  1913. 

Prendergast,  W.  A.,  Credit  and  Its  Uses,  D.  Appleton  & 
Company,  New  York,  1910. 

Rogers,  Edward  S.,  Good  Will,  Trade-Marks,  and  Unfair 
Trading,  A.  W.  Shaw  Company,  Chicago,  1914. 

Ronald  Press,  Mercantile  Credits,  New  York,  1914. 

Sammons,  Wheeler,  Keeping  Up  with  Rising  Costs,  A.  W. 
Shaw  Company,  Chicago,  1915. 


BIBLIOGRAPHY  357 

Shaw,  A.  W.,  An  Approach  to  Business  Problems,  Harvard 
University  Press,  Cambridge,  Mass.,  1916. 
Some  Problems  of  Market  Distribution,   Harvard  Uni- 
versity Press,  Cambridge,  Mass.,  1915. 

Shaw  Company,  A.  W.,  Chicago: 
Attracting  and  Holding  Customers,  1919. 
Credits,  Collections  and  Finance,  1910. 
Graphical  and  Statistical  Sales  Helps, 
Handling  Salesmen  at  Lower  Cost,  1917. 
How  to  Run  a  Store  al  a  Profit,  1913. 
How  to  Run  a  Wholesale  Business  at  a  Profit,  1918. 
The  Knack  of  Selling,  1912. 
Library  of  Business  Practice,  1914. 
Making  More  Out  of  Advertising,  1919. 
Making  Your  Store  Work  for  You,  1917. 
Organizing  for  Increased  Sales. 

Shryer,  W.  A.,  Analytical  Advertising,  Business  Service 
Corporation,  Detroit,  Michigan,  1912. 

Smith,  J.  R.,  Story  of  Iron  and  Steel,  D.  Appleton  &  Com- 
pany, New  York,  1908. 

Smith,  R.  E.,  Wheat  Fields  and  Markets  of  the  World,  The 
Modern  Miller  Company,  St.  Louis,  1908. 

Sonnichsen,  Albert,  Co72sumers'  Cooperation,  The  Mac- 
millan  Company,  New  York,  1919. 

Starch,  D.,  Advertising,  Scott,  Foresman  &.  Company, 
Chicago,  1914. 

Stevens,  W.  H.  S.,  Industrial  Combinations  and  Trusts, 
The  Macmillan  Company,  New  York,  1913. 

Tipper,  H.,  Hotchkiss,  G.  B.,  Hollingworth.  H.  L.  and 
Parsons,  F.  L.,  Advertising,  Its  Principles  and  Prac- 
tice, Ronald  Press,  New  York,  1915. 

Tipper,  H.,  and  Hotchkiss,  G.  B.,  Principles  of  Adver- 
tising, Alexander  Hamilton  Institute,  New  York,  1914. 

Todd,  John  A.,  The  World's  Cotton  Crops,  A.  &  C.  Black, 
London,  1915. 

Weed,  W.  H.,  The  Mines  Handbook,  W.  H.  Weed,  New 
York,  1920. 

Weld,  L.  D.  II.,  The  Marketing  of  Farm  Products,  The 
Macmillan  Company.  New  York,  1916. 


INDEX 


Adding  Machine  Trade,  .31. 

Adirondack  Automobile  Com- 
pany, 251. 

Albatross   Paper   Company,   280. 

Albermarle  Manufacturing  Com- 
pany, 292. 

Allagash  Company,  271. 

Allegheny  Wholesale  Grocery 
Company,  256. 

Amazon  Rubber  Company,  2.35. 

American  Locomotive  Company, 
27. 

American  Sugar  Refining  Com- 
pany, 110. 

Annisquam  Paper  Company,  229. 

Appalachee  Cotton  Manufactur- 
ing Company,  112. 

Armstrong,  Charles,  80. 

Atlas  Sign  Company,  291. 

Auctions,  17,  21,  122,  186,  198- 
203. 

Automobile  Trade,  27,  31,  100, 
212,  220,  235,  251,  263,  332,  344. 

Avon  Shoe  Manufacturing  Com- 
pany, 335. 


B 

Badger  Manufacturing  Company, 

33. 
Baking  Powder  Trade,  42,  92,  95. 
Banner  Manufacturing  Company, 

238 
Barlow,  W.  K.,  49. 
Bavsing  Point  System,  Pittsburgh, 

231,  297. 
Beaver  Hat  Company,  343. 
Belgrade  Hat  Company,  293. 
Berkeley  Shoe  Company,  264. 
Berkshire  Piano  Company,  343. 
Bill  of  Lading  Bureau,   Central, 

179. 
Blackstonc  Company,  230. 
Blackwood,  William,  120. 
Blue   Ridge   Spinning  Company, 

113. 
Brick  Trade,  294. 
Broadway  Department  Store,  30, 

273. 
Brokers,  17,  110,  112,  119. 
Brown,  Peter,  59. 


Bulk  Retailers,  12. 

Hurnside  Clothing  Company,  44. 

Butler  Brothers,  46. 

Butter  Trade,  142. 

Buying  Exchanges,  14,  95-98. 


Cairo  Accessory  Company,  332. 

Calhoun  Manufacturing  Com- 
pany, 240-250. 

California  P>uit  Growers'  E.x- 
change,  17,  129. 

Calvert  Company,  91. 

Cancellations,  258. 

Canned  Foods,  292. 

Canned  Goods,  Futures,  228. 

Car-lot  Receivers,  16. 

Carolina  Potato  Exchange,  134. 

Castine  Manufacturing  Company, 
117. 

Cattle  Loan  Companies,  188. 

Cattle  Trade,  188-192. 

Cavalier  Biscuit  Company,  98. 

Cement  Trade,  233. 

Chain  Stores,  8,  58-72,  73,  251. 

Chancellor  Manufacturing  Com- 
pany, 168. 

Chatham  Company,  51. 

Cheese  Trade,  144. 

Cherokee  Oil  Company,  110. 

Chicago  Board  of  Trade,  159. 

Chicago  Great  Western  Railroad, 
68. 

Chickamauga  Company,  93. 

Chicopce  Hosiery  Company,  290. 

Chippewa  Company,  263. 

Clothing  Trade,  Men's  and  Boys', 
30,  47,  54,  .5.5,  214,  274. 

Coal  Trade,  83,  147. 

Cohiusset  Manufacturing  Com- 
pany, 283. 

Commercial  Economy  Board,  217. 

Commission  Agent,  Textile  Trade, 
113-118. 

Commission  Merchant,  Produce 
Trade,  16,  119,  120,  121. 

Community  Stores,  94. 

Company  Stores,  7,  50,  68,  88. 

Concord  Hosiery  Company,  85. 

Congress  Wholesale  Grocery  Com- 
pany, 88. 


359 


360 


MARKETING  PROBLEMS 


Conservation  Division,  War  In- 
duatries  lioard,  33,  21G,  26G. 

Consumer,  3-6,  25,  270. 

Convenience  Goods,  4,  29. 

Conveyors,  285. 

Cooperative  Associations,  Pro- 
ducers, 17,  129-139,  173. 

Cooperative  Sales  Agency,  Manu- 
facturers', 265. 

Cooperative  Stores,  10,  77-80,  90. 

Cooperative  Wholesale  Associa- 
tions, 14,  95-98. 

Copper  Trade,  204. 

Cost  of  Doing  Business,  42,  43. 

Cost  Price  Marked  on  Merchan- 
dise, 353. 

Cotton  Goods  Trade,  69,  112-116, 
183   258 

Cotton  Trade,  Raw,  168-183. 

Cracker  Trade,  98. 

Credit,  221,  335. 

Crescent  Grocery  Company,  95. 

Curtain  Trade,  53. 

Cuyahoga  Face  Brick  Company, 
294. 


D 

Dakota  Company,  220. 

Darter  &  Company,  335. 

Delicatessen  Stores,  32. 

Dealer  Helps,  45,  254,  278. 

Dennison  Manufacturing  Com- 
pany, 336. 

Department  Stores,  7,  30,  51,  53, 
54-57,  75,  90,  273,  333. 

Diamond  Stove  Company,  271. 

Diamond  Sugar  Company,  36. 

Dirigo  Power  Company,  227. 

Discounts,  Cash,  233,  333. 

Discounts,  Quantity,  334. 

Discounts,  Trade,  334,  335-340. 

Dorway  Manufacturing  Com- 
pany, 215. 

Dover  Company,  86. 

Drop  Shipments,  45,  93,  253. 

Drug  Stores,  Retail,  71,  223. 

Dry  Goods  Trade,  Wholesale,  90, 
341. 

Duke  Manufacturing  Company, 
172. 

Dundee  Flour  Company,  29. 

Dye  Trade,  287. 


E 

Eagle  Motor  Company,  212. 
Edgewear    Safety    Razor    Com- 
pany, 237. 
Egg  Trade,  140. 


Electrical  Supply  Trade,  91,  219, 
227,  276. 

Elk  Wholesale  Grocery  Company, 
223. 

Elm  Wholesale  Grocery  Company, 
221. 

Emerson  &  Company,  182. 

Equality  Rubber  Company,  275. 

Erie  Company,  75. 

PJskimo  Stove  Company,  235. 

Essex  Manufacturmg  Company, 
219. 

Excelsior  Writing  Paper  Com- 
pany, 238. 

Exclusive  Agency,  47-48,  51,  54, 
91,  92. 

Exeter  Wagon  Company,  216. 

Export  Trade,  115,  168,  179,  229, 
234,  272,  348. 


Farm  Implement  Trade,  74,  107, 

213,  220. 
Farm    Produce,    Sale    bv    Parcel 

Post,  28,  76. 
Farm  Produce  Trade,  15-18,  119- 

145. 
Ferry  Soap  Company,  69. 
Five  &  Ten  Cent  Stores,  69. 
Flour  Trade,  35,  89,  152,  167,  223, 

265,  270,  289. 
Fur  Exchange,  International,  200. 
Furnishings,  Men's,  53. 
Furniture  Trade,  56,  118. 


G 

Garment  Trade,  Ladies'  Ready- 
To- Wear,  55,  333. 

Georgian  Clothing  Company,  47. 

Golden  &  Company,  61 

Good- Will,  265,  277. 

Goodyear  Tire  &  Rubber  Com- 
pany, 236,  264. 

Grades,  Federal  Wheat,  158. 

Grain  Trade,  152-167. 

Granite  Department  Store  Com- 
pany, 56. 

Greenwood  &  Day,  266. 

Grocery  Stores,  Retail,  43,  45,  59, 
72,  88,  95-98,  124,  228,  334. 

Grocery  Trade,  Wholesale,  47,  87, 
88,  92-95,  106,  221,  223,  228, 
252-254,  256,  277. 

Guarantee,  255. 


H 
Hampton,  Richard,  97. 
Hardware  Stores,  Retail,  42,  49, 
50,  63,  222. 


INDEX 


361 


Hardware  Trade,  Wholesale  and 
Manufacturing,  50,  215. 

Harvard  Bureau  of  Business  Re- 
search, Price  Policy,  346. 

Hawk-Eve  Coal  Company,  147. 

Hat  Trade,  293,  343. 

Ha^ihorn  Grocery  Company,  251. 

Hedging,  21,  159,  182-183,  197. 

Hematite  Conveyor  Company, 
285 

Hide  Trade,  193. 

Holden,  James,  28 

Hosiery  Trade,  14,  85,  255,  266, 
290. 

Hudson  Company,  118. 

Huron  Flour  Company,  89. 


Ice  Trade,  12. 

Imperial  Colliu-  JNIanufacturing 
Company,  112. 

Ink  Trade,  240. 

International  Harvester  Com- 
pany, 107. 

Investment  Bankers,  Chain  Stores, 
61. 

Ironstone  Company,  49. 

Iroquois  Typewriter  Company, 
250. 


Jackson  Brothers,  264. 
Jackson      Manufacturing      Com- 
pany, 288. 
Jackson,  William,  192. 
Jaffrey  Shoe  C^ompany,  86. 


K 

Katahdin  Cotton  Mills,  258. 
Kearsarge  Company,  61. 
Kelly  Bill,  352. 
Kennebec  Company,  252. 
Keystone  Mills,  113. 
Kitchen-ware  Trade,  33. 
Knight  &  Company,  270. 
Knox  &  Brown,  289. 


Labor  Policies,  Relation  to  Sales 

Policies,  270. 
Lackawanna  Company,  228. 
Laconia  Company,  87. 
Lake  Garment  Company,  333. 
Lapwing  Company,  57. 
Laurel  Clothing  Company,  54. 
Lawson,  J.  K.,  48. 
Lease  System,  22,  205. 


Leather  Trade,  205. 
Lexington  Shoe  Company,  73. 
Lombardy  Company,  92. 
Longspur  Clothing  "Company,  30. 
Longj-ear  &  Black,  183. 
Lucas,  John  &  Company,  46. 


M 

Mail  Order  Houses,  10,  73-75. 

Manchester  Texiile  Machinery 
Company,  211. 

Manitowoc  Hardware  Company, 
50. 

Manhattan  Paint  Company,  222. 

Market  Analysis,  3,  234-235. 

Markets,  Retail  Public,  11,  81, 
124. 

Miu-kets,  Terminal,   17,   122-128. 

Marj)le  Company,  99. 

Mason  Shoe  Company,  353. 

Ma.«;sachusetts  Commission  on  the 
Cost  of  Living,  84,  122. 

Maj^ower  Sugar  Refining  Com- 
pany, 294. 

Meat  Trade,  19,  101-106. 

Merrimac  Flour  Milling  Com- 
panj'^,  265. 

Middlesex  Company,  115. 

Mikado  Company,  100. 

Milk  Trade,  12,  37,  82. 

Milk  Trade,  Evaporated,  288. 

Mohawk  Company,  25. 

Monadnock  Food  Products  Com- 
pany, 45. 

Monterey  Automobile  Company, 
31. 

Morningside  Novelty  Company 
342. 

Motor  Trade,  288. 

Muskegon  Company,  265. 


Nantucket  Company,  183. 
National  Hardware  Stores,  Inc., 

63. 
Narragansett   Wholesale  Grocery 

Company,  277. 
Nepoiiset  Soap  Company,  251. 
New  York  Cotton  Exchange,  182. 
Niagara  Clothing  Company,  274. 
Norfolk  Hosiery  Company,  255. 


O 

Ogunquit       Wholesale      Grocery 

Compunv,  253. 
(~)il  Stove  triide,  264,  271. 
Orchard  Company,  53. 


362 


MARKETING  PROBLEMS 


Orders,  Special,  214-215. 
Oriole  Company,  214. 
Oswego  Paper  Company,  272. 
Overall  Trade,  4,  270. 
Oxford    Adding    Machine    Com- 
pany, 31. 


Package  Goods,  36,  1 10. 

Paint  Trade,  217,  222. 

Paper  Trade,  215,  222,  229,  238, 
272   280,  348. 

Parcel  Post,  Farm  Produce,  28, 
76. 

Pejepscot  Manufacturing  Com- 
pany, 186. 

Pemaquid  Automobile  Company, 
235. 

Pen  Trade,  Fountain,  282. 

Penobscot  Company,  234. 

Pensacola  Iron  Works,  50. 

Penwick  Company,  47. 

Peters  &  Company,  349. 

Petrel  Motor  Company,  288. 

Piano  Trade,  343. 

Pittsburgh  Basing  Point  System, 
231,  297. 

Plymouth  Dye  Company,  287. 

Pond  Company,  F.  W.,  32. 

Pontiac  Milling  Company,  223. 

Potomac  Mills,  69. 

Pottery  Trade,  33. 

Prairie  Dry  Goods  Company,  90. 

Price  Maintenance,  Resale,  349. 

Procter  &  Gamble,  98. 


Q 

Quotas  for  Salesmen,  251. 


R 

Railroad,  Chicago  Great  Western, 
68. 

Raven  Manufacturing  Company, 
29. 

Red  Wing  Milling  Company,  152. 

Retail  Branches,  Manufacturers', 
9,  72-73. 

Retail  Branches,  Wholesalers',  91. 

Retail- Wholesale  Store,  7,  50. 

Returned  Goods,  256. 

Roanoke  Manufacturing  Com- 
pany, 41. 

Robinhood  Flour  Mills,  289. 

Rochdale  Plan,  11,  15,  77. 

Rogers  &  Brown,  43. 

Rogers,  Gray  &  Company,  114. 

Royal  Flour  MiUs,  270. 


Royal    Portland    Cement    Com- 
pany, 233. 
Royalty  System,  205. 
Rubber  Trade,  235,  236,  274-276. 


S 

Safety  Razor  Trade,  237,  287. 

Sagamore  Tractor  Company,  39. 

Saginaw  Paint  Company,  217. 

Saginaw  Soap  Company,  272. 

Sales  Organization,  238. 

Salesforce  Management,  240-254, 
341. 

Saranac  Fountain  Pen  Comoany, 
282. 

Sebago  Mills,  182. 

Selling  Points,  235-238. 

Seminole  Company,  254. 

Seneca  Flour  Milling  Company, 
35. 

Shamrock  Storage  Battery  Com- 
pany, 344. 

Shenandoah  Paper  Company,  222. 

Sherwin-WilUams  Company,  46. 

Shoe  Stores,  Retail,  44,  73,  86,  273. 

Shoe  Trade,  Wholesale  and  Manu- 
facturing, 1,  13,  86,  264,  335, 
353. 

Shopping  Goods,  4,  29. 

Siegel  Company,  55. 

Silk  Trade,  30,  57,  116. 

Smith,  Brown  &  Company,  73. 

Smith,  W.  K.,  47,  55. 

Soap  Trade,  69,  98,  251,  272. 

Spartan  Electric  Company,  219, 
227. 

Specialty  Salesmen,  93. 

Specialty  Stores,  7. 

Speculation,  Organized,  21,  159, 
182-183,  197. 

Squantum  Paper  Company,  348. 

Squire,  John  P.  &  Company,  105. 

Standard  Oil  Company,  109. 

Star  Paper  Company,  215. 

Steam  Turbine  Trade,  227. 

Steel  Trade,  203,  230,  297. 

Stephens- Ash urst  Bill,  350. 

Stevens,  Charles  K.,  58. 

Stock  Department,  117,  215. 

Stock  in  Manufacturing  Com- 
pany, Accepting  for  Pajonent, 
211. 

Stock  in  Manufacturing  Com- 
pany, Sale  to  Customers,  49. 

Stocks  and  Prices,  203. 

Storage,  Cold,  140. 

Stove  Trade,  235,  276. 

Straw,  J.  G.,  221. 

Stumblo  Pottery  Companj',  33. 

Sudbury  Company,  72. 


INDEX 


363 


Sugar  Trade,  36,  110,  150,  294. 
Susquehanna   Manufacturing 

Company,  286. 
Sweets  Company  of  America,  Inc., 

70. 


Talking  Machine  Trade,  238. 

Tanager  Breakfast  Food  Com- 
pany, 334. 

Textile   Banking  Company,    116. 

Textile  Machinery  Trade,  211. 

Three- Way  Plan,  45. 

Titan  Company,  53. 

Tobacco  Trade,  Leaf,  198. 

Toilet  Goods,  75,  254. 

Tomato  Trade,  87. 

Tonawanda  Hosiery  Company, 
29. 

Tool' Trade,  99,  271. 

Tractor  Trade,  39,  220. 

Trellises,  Garden,  283. 

Tripod  Retail  Grocery  Company, 
45. 

Twenty-five  and  Fifty  Cent 
Stores,  61. 

Typewriter  Trade,  250. 


U 

Warehouse 


Corporation, 


Union 
178. 

Unit  Stores,  6,  41. 

United  Drug  Company,  71. 

United    Shoe    Machinery    Com- 
pany, 22,  205. 


United  Statea  Rubber  Company, 
274. 


Variety  of  Products,  33,  215-219. 
Victor  Company,  270. 
Virginia  Stove  Company,  276. 
Volt  Electric  Company,  227. 


W 

Wagon  Retailers,  12,  82,  83. 

Wagons,  Fiu-m,  216. 

Water  Turbine  Trade,  219. 

Water  Whrol  Trade,  234. 

Wat  kins  &  Company,  173. 

Weatherhead  &  Company,  123. 

Wellflect  Company,  75. 

White  &  Company,  116. 

White  Star  Farm  Machinery 
Company,  213. 

Wholesale  Branches,  Manufac- 
turers', 18,  98-109,  205,  222. 

Wholesale  Grocers  Sales  Com- 
pany, 84. 

Wholesale  Merchants,  13. 

Wholesalers,  Catalogue,  14. 

Wholesalers,  Specialty,  14. 

Williams,  F.  K.,  42. 

Wilson,  James,  74. 

Windermere  Dry  Goods  Com- 
pany, 341. 

Woodcock  &  Eldridgp,  87. 

Wool  Trade,  Raw,  183-187 


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